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AUD/USD faces volatility amid economic uncertainties


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Dovish RBA and US jobs report propel AUD/USD turbulence, reshaping economic outlook.

 

original-size.webpSource: Bloomberg

 
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 Tony Sycamore | Market Analyst, Australia | Publication date: 

Last week, the AUD/USD soared to a nineteen-week high at .6691, only to plummet nearly 1.5%, closing at .6576. The sharp decline was fuelled by a potent combination of adverse local and offshore events

The dovish on-hold decision by the RBA last Tuesday, coupled with a sub-par Q3 GDP in Australia, triggered a significant transformation in the Australian interest rate market. It shifted from anticipating further RBA rate hikes to now reflecting expectations of rate cuts in 2024.

Simultaneously, a robust US employment report on Friday night pushed back the anticipated timing and magnitude of Fed rate cuts in 2024. This development bolstered US yields and the strength of the US dollar. Whether the AUD/USD can steady the ship this week will be determined by events in the US, including CPI, the FOMC meeting and retail sales, but also by Thursday’s all-important Australian jobs report for November.

Australia's employment report (Thursday, 14 December at 11.30 am AEDT)

In October, the Australian economy added 55k jobs vs. the 20k expected. The unemployment rate increased to 3.7% from 3.6%, and the participation rate increased to 67% from 66.8%.

Bjorn Jarvis, ABS head of labour statistics, said: "The large increase in employment in October followed a small increase in September of around 8,000 people. Looking over the past two months, these increases equate to average employment growth of around 31,000 people a month, which is slightly lower than the average growth of 35,000 people a month since October 2022."

In November, the market is looking for a +11k rise in employment, and the unemployment rate to rise to 3.8% from 3.7%. The participation rate is expected to ease to 66.9% from 67%.

AU unemployment rate chart

 

AU-unemployment-rate-11DEC.pngSource: TradingEconomics

AUD/USD technical analysis

In last week’s update, we noted that the rally from the October .6270 low had been anything other than “smooth sailing,” and included several testing retracements.

Given the data-rich calendar touched on above, there is a good chance of more testing price action this week. More so, as the AUD/USD closed the week right on the 200-day moving average, making a high conviction directional view somewhat elusive.

Short-term traders may look to sell bounces back towards trendline resistance and last week's highs .6690 area, looking for the AUD/USD to test the .6520/00 support zone. For those who would prefer to buy the dip, .6520/00 is the support zone that needs to hold to prevent a deeper retracement.

AUD/USD daily chart

 

AUDUSD_2023-12-11_07-57-56.pngSource: TradingView

  • Source TradingView. The figures stated are as of 11 December 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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