Trading the News: Australia Employment Change

What’s Expected:

Time of release: 11/10/2011 00:30 GMT, 19:30 EST

Primary Pair Impact:AUDUSD

Expected: 10.0K

Previous: 20.4K

DailyFX Forecast: 0.0K to 20.0K

Why Is This Event Important:

Employment is expected to increase another 10.0K in October after expanding 20.4K in the previous month, and the ongoing improvement in the labor market is likely to spark a bullish reaction in the Australian dollar as the data highlights a positive outlook for the isle-nation. In turn, we may see the Reserve Bank of Australia talk down speculation for another rate cut, and the central bank may endorse a wait-and-see approach for the remainder of the year as the region continues to benefit from global trade. However, the RBA may take additional steps to stimulate the economy as policy makers curb their outlook for growth and inflation, and we may see the central bank continue to scale back the rate hikes from the previous year as it aims to encourage a sustainable recovery.

Recent Economic Developments

The Upside

The Downside

The rise in private sector consumption may encourage businesses in Australia to expand their labor force, and an above-forecast employment print may lead the AUD/USD to retrace the sharp reversal from 1.0752 as the fundamental outlook for the isle-nation improves. However, the labor report may fall short of market expectations as firms scale back on production, and a rise in the jobless rate is likely to weigh on the aussie as it dampens the outlook for future growth. In turn, the AUD/USD may threaten the narrow range carried over from the previous week, and we may see the exchange rate fall back towards the 38.2% Fibonacci retracement from the 2010 low to the 2011 high around 0.9920-50 to test for near-term support.

Potential Price Targets For The Release

How To Trade This Event Risk

Expectations for another rise in employment reinforces a bullish bias for the aussie, and the market reaction could pave the way for a long Australian dollar trade as the data highlights an improved outlook for the region. Therefore, if the economy adds 10.0K jobs or more from the previous month, we will need to see a green, five-minute candle subsequent to the release to generate a buy entry on two-lots of AUD/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.

On the other hand, the drop in production paired with the slowdown in service-based activity may lead businesses to scale back on hiring, and firms may keep a lid on employment as the RBA curbs its outlook for growth and inflation. As a result, if the labor market fails to grow, we will implement the strategy for a short aussie-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the change in Australia Employment has had on AUD during the last month

September 2011 Australia Employment

Australia added 20.4K jobs in September after shedding 10.5K positions the month prior, while the jobless rate fell back to 5.2% from 5.3% during the same period to mark the first decline since March. The breakdown of the report showed a 10.8K rise in full-time employment, with part-time positions increasing 9.6K, while the participation rate held steady at 65.6% for the fourth month in September. As the development reinforces an improved outlook for the isle-nation, we may see the Reserve Bank of Australia talk down speculation for a rate cut, but the central bank may continue to scale back its hawkish tone for monetary policy as the slowing recovery dampens the risk for inflation. The better-than-expected employment report sparked a bullish reaction in the Australian dollar, with the AUD/USD pushing back above 1.0200, but the high-yielding currency lost ground throughout the day as we saw the exchange rate closed at 1.0190.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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