AUD / USD downturn takes shape ahead of Australia’s employment report

Australian Dollar Talking Points

AUD / USD carves a series of higher highs and lows as it prolongs the recovery of the annual low (0.6829), and fresh data prints coming from Australia could fuel greater exchange rate gains as employment expected to increase for six consecutive months.

AUD / USD downturn takes shape ahead of Australia’s employment report

AUD / USD seems to be reversing rate before the low of June 2020 (0.6648) amid recovery in global benchmark stock indiceswith the exchange rate trading to a fresh weekly high (0.7041) as the Reserve Bank of Australia (RBA)’s minutes reveal that “timely evidence of liaison and business surveys indicated that labor costs had risen in a tight labor market and that a further increase was likely over the coming period.

Consequently, the RBA insists that “that further increases in interest rates are likely to be needed to ensure that inflation in Australia returns to target over time”And updating Australia’s employment report could generate a bullish response in AUD / USD as the economy is expected to add 30.0K jobs in April.

At the same time, the unemployment rate is seen to narrow to 3.9% from 4.0% over the same period, and the continued improvement in the labor market could encourage the RBA to deliver a series of rate hikes over the coming months, as the central bank is no contemporary experience on how labor costs and prices in Australia would behave at an unemployment rate below 4 per cent.

In turn, AUD / USD could bring about a bigger recovery ahead of the next RBA meeting on 7 June as governor Philip Lowe and Kie. prepares Australian households and businesses for higher interest rates, and a further rise in the exchange rate could ease the tilt in retail sentiment such as the behavior seen earlier this year.

Image of IG customer sentiment for AUD / USD rate

The IG customer sentiment report show 66.17% of traders are currently not-long AUD / USD, with the ratio of traders long to short standing at 1.96 to 1.

The number of traders net long is 6.18% lower than yesterday and 15.62% lower from last week, while the number of traders net short is 12.24% higher than yesterday and 26.92% higher from last week. The decline in net long position comes as AUD / USD climbs to a fresh weekly high (0.7041)while the jump in net short-term interest helped ease the pressure behavior, as 74.02% of traders were net long last week.

With that said, another rise in Australia Employment may fuel the recent series of highs and lows in AUD / USD as it fuels speculation for another RBA rate hike, but the recovery of the annual low (0.6829) may appear to be a correction in the broader trend with the Federal Reserve on course to normalize monetary policy at a faster pace.

AUD / USD Rate Daily Chart

Image of AUD / USD rate daily chart

Source: Trading View

  • Keep in mind, AUD / USD has the July 2020 low (0.6877) after the opening series for May broke, but the exchange rate appears to have been reversed June 2020 low (0.6648) if the recent recovery in price pulls the Relative Strength Index (RSI) from oversold territory.
  • AUD / USD carves a series of highs and lows amid the lack of momentum to fall below the Fibonacci overlaps around 0.6770 (38.2% expansion) to 0.6820 (50% retracement)with the move above the 0.6940 (78.6% expansion) area bring the 0.7070 (61.8% expansion) to 0.7090 (78.6% retracement) region on the radar.
  • Next area of ​​interest comes around 0.7130 (61.8% retracement) to 0.7180 (61.8% retracement) followed by the 0.7260 (38.2% expansion) region, which is broadly in line with the 200-day SMA (0.7265).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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