AUD/USD rises from lows in wake of soft US November jobs report

• AUD/USD has seen minor upside in wake of a soft US labour market report, but still trades in the red around 0.7430.
• Soft Australian retail sales number and ongoing Australia/China relations concerns could be weighing.

AUD/USD has risen from lows around 0.7410 to the 0.7430s in recent trade following a worse than expected US labour market report for November. Currently, the pair trades flat on the day.

AUD benefits as soft US data triggers minor risk on reaction

Bad data is good data again it seems. The November US labour market report was softer than expected, with the US economy adding just 245K jobs (expected was gains of 469K) and though the unemployment rate dropped 0.2% to 6.9%, this was driven by a 0.2% drop in the participation rate to just 61.5%, still nearly 2% below pre-pandemic levels.

US equity markets seem to have taken this as good news (S&P 500 and Dow both hit all-time highs), given that soft data is likely to 1) put pressure on the US Congress to deliver fresh stimulus prior to the Biden administration taking office in January and 2) put pressure on the Fed to deliver more stimulus later in the month via tweaks to the guidance, composition or even size of its QE programme. Indeed, US equities have advanced to fresh all-time highs.

However, the USD reaction has been more nuanced. The Dollar Index still trades marginally in the red on the day, but losses were again capped above 90.50 and DXY now trades flat compared to when the data came out.

AUD gains in the aftermath of the data have now mostly been given back. Gains vs USD are being hogged by the likes of CAD, which a boost from its own November labour market report which exceeded expectations by some margin, and GBP, which is higher amid hopes for a Brexit deal by the end of the week.

On the day, AUD/USD still trades marginally in the red; final Australian Retail Sales numbers for October, released during Friday’s Asia session, underwhelmed and could be weighing on the Aussie. Retail sales rose at a slightly softer than expected rate of 1.4% MoM, lower than the preliminary estimate for October retail sales of 1.6%.

However, more broadly, the greatest concern on the minds of AUD bulls right now has been the deterioration in diplomatic and trade relations between Australia and its most important trade partner China over the last few week. Any signs of normalisation of ties is likely to be greeted jubilantly by AUD traders.

AUD/USD finds resistance at previous yearly high

AUD/USD has survived a retest of the previous yearly high (set back in early September) at 0.7114. The level appears to have offer strong support, with bulls keen to buy the dip. As long as USD continues to weaken and risk appetite remains buoyant, Thursday’s year-to-date highs at 0.7450 look likely for the taking. Beyond these highs, the next key area od resistance is the psychological 0.7500 level, which coincides with the December 2017 low. Conversely, if the bears regains control and push the pair back below the September high and the 0.7400 level, a move back towards a key area of resistance around 0.7340 is likely.

AUD/USD four hour chart