Forex traders have largely followed the trend and grew accustomed to positive spillover form the equity markets where traders cheered economic data regardless of how good or bad it was as towards the end of each trading session bullish traders always made the case why the data was good.
Forex traders received a dose of negative economic data today out of Australia after this developed country reported its employment figures for the month of December. While most economists expected a slowdown from November’s hiring pace largely due to seasonality as well as an overall slowdown in the Asian-Pacific economy and decreased demand on a global scale.
Here are the disappointments reported out of Australia on the labor front during this morning’s Asian trading session:
- Headline employment figure showed a contraction of 22,600 jobs; 32,600 below expectations for a gain of 10,000
- November was revised lower and now shows only 15,400 jobs were created during that month
- Full-time employment contracted by 31,600 in December
- November full-time employment was revised down to a gain of 10,500
- Part-time employment increased by 9,000 jobs in December
- November part-time employment was revised down to a gain of 4,900
- Labor participation fell to 64.6% and shows an increased trend towards frustration in the Australian labor market
- The unemployment rate managed to stay at 5.8% despite the drop in the headline figure
The Australian Dollar dropped sharply after the disappointment was announced and the AUDUSD currency pair dropped below 0.8800 towards a three-year low. The reason for the sharp sell-off was that forex traders have now increased their bets that the Reserve Bank of Australia may continue to cut interest rates.
After the last RBA cut most market participants agreed that no further cuts in interest rates will be necessary which put a floor under the Australian Dollar. This employment report released today points towards an Australian economy hit far worse than expected which put the RBA and changes to monetary policies back in play.
The Australian Dollar could weaken further as support levels have been taken out and volatility may increase over the next few trading sessions as this Australian currency tries to find its next support level and define it. New traders should wait until after the stabilization bottoming out process before a short-covering rally could open long opportunities.
The New Zealand Dollar has been the biggest local beneficiary of Australian Dollar weakness and the AUDNZD currency pair is moving closer to parity, an event most forex traders deem very unlikely which could result in very good long-term buying opportunities in this currency pair.
