AUD/USD: Unmasking the antipodean dance; navigating economic storms

Facing the storm: AUD/USD and NZD/USD in August

Last week, the AUD/USD closed lower for a fourth consecutive week, experiencing a decline of 3.67% in August. The situation was not much better for the NZD/USD, which suffered a decline of almost 4% month to date.

Both the Antipodean currencies faced a confluence of challenges in August. The Australian and New Zealand economies are significantly exposed to the economic slowdown in China. These currencies are often treated as risk proxies, leaving them vulnerable when equity markets turn downward, as they did this August.

The tone of the Federal Reserve remained hawkish, and the increase in issuance of US Treasury bonds, combined with robust economic data, bolstered both US yields and the US dollar. Consequently, the AUD/USD and NZD/USD were affected negatively.

Employment report

Thursday, August 17 at 11.30 am AEST

July saw June's employment surge by 32.6k, surpassing market predictions of a 15k increase, while the unemployment rate remained steady at 3.5%. The participation rate saw a slight decline of 0.1%, falling to 66.8% from the previous month's record high of 66.9%.

The rise in employment during June maintained the employment-to-population ratio at a historic high of 64.5%, reflecting a tight labor market where job growth has matched population expansion.

July's expectations call for a modest employment increase of +15k, with the unemployment rate expected to tick up slightly to 3.6%. Meanwhile, the participation rate is projected to remain unchanged at 66.8%.

AU unemployment rate

AUD/USD technical analysis

In our previous AUD/USD update, we highlighted that while the currency pair remained below the resistance level of .6600/20, we were anticipating a test of the May .6458 low. This call proved accurate, with the AUD/USD dropping to a low of .6460 recently.

Now comes the tricky part, especially given the high number of false breaks that have occurred during 2023. If the AUD/USD maintains a sustained break below the support of .6460/50, it could pave the way for a test of the downside support level around .6350.

It's crucial to note that if the AUD/USD manages to hold support at .6460/50, a rebound above resistance at .6600/20 is necessary to negate the prevailing bearish bias.

AUD/USD daily chart

• _{TradingView: the figures stated are as of August 14, 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.}