Jobs Report Jolts The Australian Dollar

 |  Includes: FXA
by: Ralph Shell

There are some similarities between the most recent US Non-Farm Payroll Report and today's Australian Employment Change Report. Today it was announced there was a 71.5K increase in new hires during the last month, more than the anticipated 10K and the 10.4K last month. The unemployment rate remained unchanged at 5.4%, but the Labor Force Participation Rate went up from 65% to 65.3%.

This report has baffled the experts. reports:

"ANZ head of Australian economics Justin Fabo said this was a 'very strange labour force report'' as despite concerns about the economy slowing the number of employed people has risen by the largest amount since July 2000.

"'At face value, the employment numbers look very odd and we expect some significant pullback next month,' Mr Fabo said."

This report excited the market, as did the NFP did when released last Friday. From a low of 1.0287 today versus the USD the Aussie shot up to the 1.04 handle. Once again traders trade first, and analyze later. Of the 71.5K jobs created, only 17.8K were full time jobs with the other 53.7K jobs part time.

This is similar to the US jobs report which showed most of the jobs created in the US were part time. Further in the US in the report last Friday, there was a loss of 128.1 full time jobs which means all the jobs created were part time. More part timers is probably one of the unintended consequences of Obamacare. But again traders took the number from Friday and ran with it, taking the USD higher.

The rally in the Australian dollar does not surprise us. On Feb. 27 we wrote:

"The long selling took us down a little below 1.02 today. We suspect the liquidation has continued as we approach the low of 1.0150 last October. .......We are inclined to think the selling in this pair (AUDUSD, FXA) has about run its course. Perhaps there will be a final thrust lower, checking out the lows made in early October. Should this area hold, a dead cat bounce should be in order with an initial target of 1.0350."

So how do we trade it now? Part our previous bearish stance was taken because we noticed speculators had accumulated a big long in the futures market. According to the COT report on Jan. 29, 2013 speculators were long 101,627 contracts of futures and delta adjusted options. Despite having bought this big position, the market at 1.0450 was not profitable. As they sold out the positions, the market sold off.

The most recent COT report from March 5 shows the spec had a net short of 263 contracts. This was after the sell out down to 1.0115 when the last bull capitulated. The dead cat bounce took us past our 1.0350 target. Our inclination is to buy the AUD/USD (NYSEARCA:FXA) if given the opportunity at around 1.03. We suspect there are some sold out bulls who may want to get back aboard the long side. As always watch your stops.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.