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Aussie Stands Above The Crowd As Labor Demand Remains Robust

Last updated 9/9/2010 3:34 AM ET (GMT -5) 15 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Australian employment data beat expectations printing at 30.9K versus 27.2K eyed, pushing Aussie to a fresh three month high as traders began to price in the possibility of further RBA rate hikes before the year end. Australian employment increased for sixth straight month while he unemployment rate dipped to 5.1% its lowest reading in more than 18 months. The underlying details were impressive as well with full time jobs rising to 53.1K after a revised 9.6K fall the month prior.

Today’s strong employment data highlights the strength of the Australian economy which stands in sharp contrast to the rest of the G-20 universe where growth is sluggish at best. The continued expansion of the Australian labor market is likely to put upward pressure on wages   which in turn could force RBA to tighten monetary policy further if Q3 CPI prints above trend.   In last night’s statement Australian monetary authorities remained neutral in their assessment of risks, but given today’s better than forecast labor market results the RBA bias will now become more hawkish into the year end.

The Aussie was the clear winner of the night rising to a new three month high of .9235 while the rest of the high beta currencies declined against the greenback.   The AUD/USD now faces formidable resistance at the .9300-.9400 level which has held for more than a year, but if in coming days the pair can recapture that level, it will open the way for a possible run to .9500 and beyond.   The Aussie continues to be   the single best proxy for the global risk trade, but it’s surprising outperformance at a time when investors remain concerned about the prospects for global growth suggests that it may rally on its own merit in the near term irrespective of the broader economic picture.        

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Comments (15)

Semaj

September 09, 2010 at 07:37 AM ET

Here is a good example of why technical traders who called for the aud/usd to crash & burn in mid August should keep at least one eye on the fundimentals. Funny how readers at THIS site seem to ignore what is written and focus on technicals alone(not always but plenty of times). Fundi's build the techs? I wonder if those aud bears took profits or watched price come all the way back & stop them out ? Just a thought.

bschlossberg

September 09, 2010 at 07:55 AM ET

Couldn't agree more

Semaj

September 09, 2010 at 08:34 AM ET

I wish you & Kathy could come up with some kind of weighted Fundimental Meter for a currency on a weekly or monthly time basis that cold be used along with technical setups. It's not easy for the novice to store all the data and relate it to each other as it compounds after muliple news releases. Just a small request :)

bschlossberg

September 09, 2010 at 08:39 AM ET

Unfortunately there is no such thing. The only thing you can say with some degree of accuracy is that interest rates will drive currencies higher so to that end any fundamental news that increases chances of that event will be helpful to the currency

schultzz.at

September 10, 2010 at 01:53 AM ET

Nominal rates for Australian Government bonds range from 4.66 for 3-month bills to 4.98 for 10 yr notes, i.e. the curve is very flat compared to other major economies.
Consumer price inflation is at 3.1%, so returns are around 1.5% in real terms. At the short end returns are much better than in the U.S. Germany or the U.K. But not so much better than Japan's with a falling CPI of 1%.

However, inflation/deflation is only a concern to those who actually want to spend their coupons/principal redemption domestically. Foreigners typically want to repatriate their capital. Then it involves speculating on the exchange rate again.

The bursting of the China property bubble and Australia's own housing bubble may not occur within the next 2-3 years. Under this assumption the Australian dollar looks attractive at 0.80 USD and 1.50 AUD for one euro.
Tom Schultz.

NeoFX

September 09, 2010 at 11:40 AM ET

Semaj,

no one ever said this market was easy to predict....all we can do is try, whether we use technicals or fundamentals.

I rode this down from .9200 till .8800, and actually I re-shorted at the ret @ .9050. I gained over 600pips from those two moves.

I thought this may have had more fuel to fall a bit more.

Later on, however, as I believe in also having an open mind to the charts and not marry a trade, I also said that this 38.2% ret @ .8783 (and mind you this level was hit to the exact pip on the daily chart---and that's almost unbelievable if you ask me) might prove to be too strong of a support level and may retarget .9400 again.

When I posted that this pair may fall @ .9200, My initial exit was @ .8800, or a few pips above the 38.2% retracement from A 8100 to B .9200 of latest rally.

We do this because: 1. after a symmetrical ABCD is formed and the price has completed @ D, the market retraces back to at least the 38.2% ret level 90% of the time.

and 2. We exit a bit earlier than that exact level because sometimes prices come just short of kissing that line but then rally back up so not to risk not being taken out for profit, we usually put our exits a bit before the exact level, thus why I exited @ .8800 and not @ .8783 where that fib line was located at.


These are technical reasons to place trades and to place a stop and exit targer. And these are actually the methodology that Brad and Roger typically use on this site as well.

We understand your fundamentals move prices. We get it, trust me!

But again, you have to get familiar with the picture they paint on these charts as the news and economies do what they do so that you can profit off of cyclical and repetitive movements.


I tell you what, though I don't follow the news much, I can almost guarantee you that something will happen in the next week or two that will be unfavorable to the Aussie (It could be good news for the dollar or bad Australian statistics, but something's going to make this pair fall again).

becasue I 'm very confident that this pair will fall again around .9350 to .9400 levels.

Possibly with initial profits @ .9000. Oh, and you can put your stops around .9430

Keep an eye on it...and you can thank me later

Neo

MHW

September 09, 2010 at 01:03 PM ET

"actually I re-shorted at the ret @ .9050"

Neo, what day did you short the Aussie at .9050?

Semaj

September 09, 2010 at 05:00 PM ET

Neo, any comments I made were not directed at anyone in particular, just in general. No need to defend yourself to me. Congrats on the pips and I hope you do it again.

NeoFX

September 09, 2010 at 01:30 PM ET

august 17 I think. basically was a scaling move: I added to my already short position all the way to my initial .8800 target.

Look for a short position @ .9378 again. Worst case scenario it'll be .9400, but it will fall again soon I'm sure.

Looking at the number of candles, it may be as soon as this coming Monday, unless it pulls back now a bit that is, then it could be later on next week.

I'll keep updating

Neo

ScottyJeff

September 09, 2010 at 02:00 PM ET

"Worst case scenario it'll be .9400, but it will fall again soon I'm sure. "

No serious technician has ever used the words "I'm sure." Every true technician knows that we deal in a world of probability, not certainty. This is why even professional analysts like Brad, Roger and Boris always use stops.

Your refusal to mention stop losses (and using like "worst case scenario, AUD/USD will rise to .94 before falling") is at best a grievous oversight, and at worst financially harmful to the misguided traders who follow your "recommendations."

FXDragon

September 09, 2010 at 02:26 PM ET

So we got Boris and Semaj on the bull camp hybe? Reckon!
Do not follow my trades, i dont use stops and its dangerous, im also crazzy.
Im shorting any high on audusd down to 78(which is my birthday) until December.
And i dont care what fibos tell nor Australia grows 100% and adds million jobs every month.

MHW

September 09, 2010 at 06:17 PM ET

I don't use pre-established stops either. I only take losses when I need to add liquidity to my account.
When the market goes against me, I prefer to hedge against my losers. Hedging is still allowed
with UK based accounts.

NeoFX

September 09, 2010 at 02:26 PM ET

Scotty Jeff,

as far as stop losses go, see my comment above, I did provide one, .9430. Read before you speak and attack.

and I agree, I don't like the word "sure" in this market either ....But in this case, again, I'm pretty sure it'll find huge resistance at this level.

Now, I can certainly be wrong....... but when it does fall at least 200 pips from the .9350 to .9400 range, then hopefully you can be quite a bit after that. (I actually think it'll fall for more than 200 pips to about .9000 level again but for now .9200'll be my initial target)

Neo

P.S. over 1200 pips up since early March doesn't qualify as "financially harmful". I know someone like yourself may want to see "proof" of this, but that's what it has been. Not all on my own: I'm subscribed to MTI's mentorship and that has helped a lot of course. But mainly I do my own trading. And between them, FX360, and my own analysis that's what the last months have produced. Before that I was in the red big time but I've only been involved with Forex trading since mid of '09.

rck66

September 09, 2010 at 03:50 PM ET

Like Neo, I see resistance a bit above 9300 with a max of around 9400. I can see more likely 1 more push up. Also if you follow elliot, which I dont 100%, it is clear to see a w3 in progress if you use range bars. I will look for a short above 9300 and depending on conditions by then, my target could be 200 pips or higher

NeoFX

September 09, 2010 at 11:04 PM ET

take a look at the EUR/USD fellas....it just broke thru.

1.2446 could be the next support perhaps. However, it could really be ridden down to about 1.2200.

exciting!!!

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.