AUD/USD in focus ahead of China National Congress, Australian jobs data

AUD/USD has retreated during the first two days of this trading week after having surged sharply for most of last week. Much of the currency pair’s pullback so far this week can be attributed to a rebounding US dollar, which has been driven in part by consistently increasing confidence that the Federal Reserve will raise interest rates again in December. Current market expectations for this Fed rate hike are running well over 90%.

On Tuesday in Sydney, the Reserve Bank of Australia (RBA) released the minutes from its last monetary policy meeting. The minutes showed that members discussed improving conditions in both the Australian domestic economy as well as international economies. However, there were still concerns over weak inflation, low wage growth, and the relative strength of the Australian dollar. Further, members noted that despite the general path towards policy tightening being taken by other central banks, it would “not have mechanical implications for the setting of policy in Australia.”

Some key events this week and next week could make a significant impact on the Australian dollar and the AUD/USD currency pair. On Wednesday, the 19th National Congress of the Chinese Communist Party will begin, featuring meetings among top government leaders of a country that stands as the world’s second largest economy as well as the single greatest influencer of the Australian economy. Developments emanating from this infrequent gathering of China’s policymakers could affect the future direction of the Australian economy and Australian dollar, which is often used as a proxy for trading China-related events.

Also this week, Australian jobs data will be released on Thursday. September is expected to have added 14.1K jobs to the Australian economy. The previous two months saw substantial upside surprises over expectations. The unemployment rate is expected to have remained steady at 5.6%.  In addition, next week will feature Australian quarterly CPI inflation data, which will be a critical input for an RBA concerned about weak inflation.

From a technical perspective, as noted, this week so far has seen AUD/USD pull back after the previous week’s surge. On a longer-term basis, AUD/USD is still trading within a bullish trend, but the late September breakdown has suggested a potentially significant correction in the making. Most recently, the currency pair rebounded from major support around the 0.7750 level last week. This level should once again be the area to watch if the US dollar continues to surge on rising Fed expectations as well as a potentially growing policy divergence between the Fed and RBA. With any further breakdown below 0.7750, the next major downside target is around the key 0.7500 support area.