Release: Australia Employment Change (Mar)
Consensus Forecast: 6.4K
Date/Time: 04/11/12 9:30PM EDT (01:30 GMT, 04/12/12)
Will March Employment Data Be A Catalyst for AUD?
Data for Australia this week showed that home loans fell at the biggest pace in since March 2011 while consumer confidence continued to decline in March. That continues this string of poor fundamentals from that economy and increases the pressure for the RBA to lower interest rates.
In the upcoming Thursday Asian morning session (or 9:30 PM on Wednesday NY time) we get latest reading on the labor market. The expectation is for a rebound in March with economy adding 6.4K jobs after having shed 15.4K jobs in February.
Looking at a chart of Australia's employment change we see a very rocky road over the last year with a positive surprise in January a lone bright spot. Therefore the central bank should already be concerned about the labor market and if we have a negative surprise (another negative print) that should certainly act as a catalyst to further weigh on the Australian dollar.
The expectation is that the unemployment rate will rise to 5.3% from 5.2%.
If Weaker Than Expected, Employment Likely the Final Nail in the Coffin For Rate Cut in May
The interbank market is already increasing it's expectations for the amount of rate cuts we will see from the RBA over the next year, with the overnight index swaps showing expectation of near 100 basis points of cuts during that timeframe. That deterioration started in mid-March and accelerated this week.
AUD/USD May Test Key Resistance Around the Release
With this situation in Europe calming in the Wednesday trading session we saw a general move in favor of higher-yielding currencies and against safe havens like the dollar and yen. That has helped the AUD/USD pair to rally from support near 1.0020.
However this pair continues to be in a bearish alignment as we trade within a downward sloping channel, below the 200-daily EMA (gray), the 21-EMA (in red) has crossed below the 55-EMA (blue) and the difference between them is widening out a signal of a trend.
There is a confluence of resistance near 1.0380 which included the 21-EMA, the 200-EMA and a downward sloping resistance trendline which could set up for an opportunity to short the pair if we have employment data disappoint, or a return of general risk aversion in financial markets.
We are already seeing markets pricing in more rate cuts from the RBA so fundamentally the picture favors the bearish outlook. The technicals seem to line up for a bearish outlook as well, and therefore we are awaiting sentiment to switch from risk on to risk off, or a fundamental catalyst like the employment data to give this pair a downward push.
If we do see that 1.0380 area acting as resistance our conservative target would be the low for this week (near 1.0220) and below that we would look at 1.0120, then the parity level, and for a very aggresive target the 0.9920 area. Those more aggressive targets would require further risk aversion and a pullback from equities and commodities. Perhaps very poor Chinese GDP data at the end of the week could be a catalyst for such action.
For now we monitor the Australian employment data coming up in the Asian session for clues as I continue to carry a bearish bias in the pair. If however this pair pushes above 1.04, clearing the resistance cluster we highlighted, and we have a turn towards risk appetite as a result of other developments then we would have to shelve the bearish outlook for the time being.
We will follow-up with this important release, and its impact on the AUD in our Market Intelligence Briefings.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.