AUD/USD faces downward pressure: global and domestic factors weigh as NAB business confidence survey looms

Last week saw a third consecutive weekly fall for the AUD/USD, as a combination of global and domestic events supported the US dollar and undercut support for the Australian dollar.

To recap, last week.

• Employment in Australia fell by 65.1k jobs in December, well below the 15k gain expected. The unemployment rate remained unchanged at 3.9% due to a significant drop in the participation rate from 67.1% to 66.8%, which often occurs when those discouraged stop looking for work. Hours worked fell for a second consecutive month.
• While China's GDP growth picked up to 5.2% y/y in Q4 2023 from 4.9% in Q3, the increase was largely due to base effects. Notably, sequential growth slowed to 1% q/q in Q4 from 1.5% in Q3 despite a host of easing measures by the government.
• Fed Waller's speech was less dovish than expected. Waller expressed a keen interest in seeing more progress on the inflation front and preferred a slower pace of cuts than in previous cycles.

In a holiday-shortened week, the only local economic event of note will be the NAB Business Confidence survey released on Tuesday morning, previewed below, with the key drivers of the AUD/USD more likely to be risk sentiment, the outcome of central bank meetings in Japan and Europe as well as inflation data in the US.

NAB Business Confidence survey (Thursday, January 18th at 11.30 am AEST)

The NAB Business Confidence survey index dived to -9 in November, the lowest print outside the Covid period since 2012.

The market consensus is for a marginal rise to -7 in December. Within the sub-indices, employment and pricing intentions will be the focus, which were both on the firm side of things in November.

Australian business confidence chart

AUD/USD technical analysis

From the October .6270 low to the December .6871 high, the AUD/USD gained just under 10% in two months. The rally appears to have unfolded in five waves (Elliott Wave), which suggests the pullback from the .6871 high is part of a correction rather than a reversal lower.

This view is supported by the AUD/USD last week holding and bouncing from the strong layer of horizontal support at .6520/00, noted in last week's update, which also includes the 61.8% Fibonacci retracement of the October to December rally at .6500c.

Therefore, leaning against support at .6520/00, a positive bias is in place, looking for a rebound initially towards resistance at .6700/25. Aware that if a sustained break of .6520/00 were to occur, it would warn that a deeper decline is unfolding towards 6400c.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 22 January 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}