AUD/USD faces challenges: Chinese GDP and Australian jobs report in spotlight

Last week saw a second consecutively weekly fall for the AUD/USD, as a softer-than-expected Australian inflation report and a 4.4% fall in the price of iron ore weighed on the local unit.

Whether the AUD/USD can regain upside traction after its almost 10% rally into year-end will depend to a large degree on Chinese GDP and activity data due for release on Wednesday, which will provide fresh insights into the health of the Chinese economy at the beginning of 2024.

Locally, the release of the latest Australian labour force report schedule for release on Thursday, previewed below, will also have a strong say in how the AUD/USD trades this week.

Employment data (Thursday, January 18th at 11.30 am AEST)

The Australian economy added 61.5k jobs in November vs. the 11.5k expected. The unemployment rate rose to 3.9% from 3.8%, as the participation rate surged to a record high of 67.2% from 67%.

Bjorn Jarvis, ABS head of labour statistics, said: "With employment increasing by 61,000 people, and the number of unemployed people rising by 19,000, the unemployment rate rose to 3.9 per cent in November." This month, the market is looking for a +15k rise in employment and for the unemployment rate to remain unchanged at 3.9%. The participation rate is also expected to remain unchanged at 67.2%.

Ahead of the jobs report, there are two RBA rate cuts priced into the Australian rates market, with a first-rate cut for June and a second by December, which would take the cash rate back to 3.60% by year-end. If the unemployment rate were to tick up to 4% or above, it might see the start of a third rate cut priced into the rates curve for 2024.

Australia's unemployment rate 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.

The correction will likely be well supported initially at the early January .6640 low, reinforced by the 200-day moving average at .6580. A very good layer of horizontal support is not far below at .6520/00.

If we were to see evidence of basing near one of the support levels mentioned above, it might be the setup for a long trade looking for a rebound towards the .6871 high.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 15 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.}