- AUD/USD has rallied from 0.7137 to a high of 0.7163 on positive revisions and headline data.
- However, Aussie fate is more in the hands of offshore economic performance and geopolitical tensions.
AUD/USD is showing signs of a sustained correction at this juncture, fuelled by a softer greenback and Fed hike prospects as well as positive domestic jobs data. We have had a series of good news from the jobs sector and today's release underpins the market's strength. The seasonally adjusted data shows that the employment change arrived at 21.6k vs the expected 18.0k, but a far cry from the prior 39.0k that had been revised higher from 37.0k. The unemployment rate dropped to 5.0%, which is very positive, below the 5.1% prior ad 5.1% expected. Full-time employment has gained traction, -3.0K vs prior was -7.3K, revised from -6.4K and part-time employment change is also looking promising, 24.6K vs prior +46.3K, revised from +43.4K. And above all, the participation rate is sold at 65.6%, marginally lower than prior and expected at 65.7%.
AUD/USD bulls to find a hard time ahead
However, wages are a sticking point and retail sales was also a disaster in Dec, worst on record and not any better in Jan. Markets will now look to the December quarter headline CPI 0.3%qtr which is a seasonally soft quarter. And, of course, Core inflation is critical. "Core inflation is forecast to be below the bottom of the RBA target band as moderating housing costs hold back overall inflationary pressures. Overlay a competitive deflationary pressure in consumer goods so it is hard to see core inflation breaking much higher any time soon," analysts at Westpac argued.
A less hawkish position, (not dovish), of the Fed and market speculation that other G10 central banks such as the RBA and the RBNZ may be more likely to cut rather than hike rates this year will likely keep a lid on the Aussie, especially in light of China's economic performance and geopolitical uncertainties that will keep the pressures on EM-and commodity-FX.
- Support levels: 0.7105 0.7070 0.7030
- Resistance levels: 0.7155 0.7180 0.7210
Valeria Bednarik, Chief Analyst at FXStreet explained that the immediate now comes as the 0.7180 level. "Seems unlikely the pair could recover and sustain the 0.7200 level. To the downside, a strong support comes at 0.7070, with large stops suspected below it. If those get triggered, the pair will likely approach the 0.7000 region in the upcoming sessions."
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