• AUD/USD is knocked for six on the strong NFP headline.
  • The price is taking on 4-hour support, a break of that opens the risk of a deeper run below the countertrend line to test 0.68 the figure.

AUD, sensitive to risk tones in financial markets, has been battered by a doubling of market expectations in the Nonfarm Payrolls outcome. AUD/USD has fallen to 0.6882, dropping three pips below the August 2 lows. This move could be carving out a technical bearish breakout towards 0.6900, as illustrated below.

NFP doubles market expectations

Nonfarm Payrolls in the US rose by 528,000 in July, the data published by the US Bureau of Labor Statistics revealed on Friday. This reading followed June's increase of 398,000 (revised from 372,000) and came in better than the market expectation of 250,000. The Unemployment Rate edged lower to 3.5%.

Further details of the publication revealed that the annual wage inflation, as measured by the Average Hourly Earnings, remained unchanged at 5.2%, compared to analysts' estimate of 4.9%. Finally, the Labor Force Participation Rate declined to 62.1% from 62.2%.

Investors had been in anticipation of the report for further hints of how the US economy is faring considering a data-dependent Federal Reserve. The data now raises the prospects of a 75 bp hike from the Federal Reserve, which is not going to be favourable for risk sentiment or the Aussie that tends to track the performance of global stock markets. The odds of a 75 bps hike have leapt to 61% from 40% on the release.

US dollar tears higher on NFP

Meanwhile, ahead of the jobs data, the US dollar edged higher on Friday in a correction of some of the sharpest daily drop in more than two weeks, sliding 0.68% on Thursday, the largest fall since July 19. The US dollar index (DXY), which measures the greenback against a basket of currencies, was up 0.15% to 105.90 just ahead of the data release, a touch below the day's high of 106.00. While the data is being digested, the index is rallying to a high of 106.808, up over 1% on the day so far.

AUD/USD technical analysis

The price is taking on 4-hour support. There are prospects of a correction following this knee-jerk sell-off as the markets continue to position themselves around the data. There is scope for the price to correct to a higher area of volume to the upside near 0.6920/0.6940, but given the strength of the sentiment surrounding the Fed, a break below the lows printed today opens the risk of a deeper run below the countertrend line to test 0.68 the figure and a prior resistance structure.

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