AUD/USD pauses pullback from five-month high near 0.6950 ahead of Aussie employment data

AUD/USD stabilizes around the mid-0.6900s as traders await the key Australia jobs report for December, after taking a U-turn from the highest levels in nearly five months and posting the biggest daily loss in a fortnight the previous day.

The Aussie pair’s losses on Wednesday could be linked to the market’s fresh fears of recession, even if the Bank of Japan (BOJ) tried to please the bulls earlier in the day. Adding strength to the bearish move could be the mixed headlines surrounding China and the cautious mood ahead of Australia’s December employment data.

The risk-aversion could be linked to the hawkish Fedspeak and downbeat US data, as well as fears of the US-China tension.

That said, St. Louis Federal Reserve's President James Bullard said US interest rates have to rise further to ensure that inflationary pressures recede. On the same line, President of the Federal Reserve Bank of Cleveland Loretta Mester praised the Fed’s actions to tame inflation and Kansas City Fed President Esther George mentioned that the central bank must restore price stability, "that means returning to 2% inflation."

Elsewhere, US Retail Sales marked the biggest slump in a year while posting 1.1% MoM contraction for December, versus -0.8% market forecasts and -1.0% prior (revised). On the same line, Producer Price Index dropped to the lowest levels in six months with -0.5% MoM figure compared to -0.1% expected and 0.2% prior (revised).

It should be noted that US Treasury Secretary Janet Yellen and Chinese China’s Vice Premier Liu He met in Germany on Wednesday and initially boosted the risk appetite, together with the BOJ’s inaction. However, the diplomats’ mentioning of the areas of disagreement raised market fears of another round of US-China tension. Previously, the South China Morning Post (SCMP) mentioned that Beijing ‘should be wary’ as the US and Taiwan seeks closer economic ties.

Amid these plays, Wall Street closed in the red and yields were down too while the US Dollar recovered after refreshing the lowest levels since late May.

Looking forward, AUD/USD traders will pay attention to Australia’s employment numbers for December amid talks of easing hawkish bias at the major central banks, including the Reserve Bank of Australia (RBA). Hence, a softer outcome may exert more downside pressure on the AUD/USD prices. Forecasts suggest the headline Employment Change to ease to 22.5K versus 64K prior while the Unemployment Rate is expected to remain unchanged at 3.4%.

Technical analysis

Wednesday’s U-turn from the highest levels since the mid-August 2022 portrays a rising wedge bearish chart patter on the daily formation, currently between 0.7020 and 0.6810.