AUD/USD: Headline Employment Number Better, But Weakness Remains

The latest employment data from Australia is highly interesting – with Employment Change coming in at 10.3k amidst a forecast calling for no changes to the headline figure. This should be a good number, but unfortunately the unemployment rate for Australia actually increased to 5.7% vs a 5.6% forecast.

To compound matters, the previous month’s unemployment rate was also revised higher to 5.6%. It is obvious that the increase in unemployment rate is attributable to the participation rate which has increased from 65.2% to 65.3%, and therein lies the worrying part. This 65.2% participation rate isn’t particularly high historically, and suggest that the reason why Australia’s unemployment rate has been kept so low for the past few years could be hugely due to a lower participation rate. Considering that creation of 10K jobs is not enough to counter the effects of a 0.1% participation rate increase, one wonders how much more jobs Australia will need to create in order to have a 66% historical participation rate (source: World Bank).

Looking deeper beneath the headline figure, all is not well too – Full Time employment numbers actually fell by 4.4k while part time employment increased by 14.8k. This is not really a big issue, but does take the shine off the +10k figure. However, it seems that market doesn’t really care much about the finer details, sending AUD/USD higher as bulls were on fire following USD weakness post FOMC meeting minutes.

Hourly Chart
AUD/USD 1">
From a technical perspective, bulls may have met their match for now, with the newly formed Channel top holding firm. This Channel Top has rebuffed price once after the FOMC minutes rally, and is similarly driving price lower now, allowing an Evening Star to be formed in the process. With Stochastic readings being overbought right now, and threatening to head lower – the likelihood of price moving towards Channel Bottom increases. Currently Channel Bottom looks likely to cross the previous swing high of 10th July, which will mean that a move back to Channel Bottom will not jeopardize the current uptrend in any form.

Daily Chart
AUD/USD 2" width="580" height="402">
Price is also looking bullish after re-entering the descending Channel once more. However the space remaining for further bullish endeavors does not seem to be aplenty, seeing that price is around 100 pips away from Channel Top, with the swing high back in late Jun acting as another resistance level. Furthermore, previous forays back into Channel faltered around the mid point, with price failing to touch Channel Top ever since early May. Hence the longer outlook for AUD/USD remains firmly bearish.

Looking ahead, market is believing more and more that RBA will carry out a rate cut in August meeting. It is unlikely that this mixed bag of employment numbers will change the opinion much, which means good things for bearish speculators as current rally give them a better price to sell into. However, with USD weakness currently the name of the game now, bears may wish to wait till short-term bullish pressure in AUD/USD has dissipated before speculating on the RBA rate cut scenario. Trying to front-run a Central Bank action is risky enough, there is no reason add more risk into your portfolio.

Original post