AUD/USD rebounds as RBA signals rate hikes and US economic fears fade

The AUD/USD ended last week stronger at 0.6571, up by 0.93%, rebounding from a nine-month low. This recovery was supported by the Reserve Bank of Australia's (RBA) hawkish stance and diminishing fears of a US recession.

Volatility driven by unwind of the Japan trade

At this time last week, the AUD/USD was trading near 0.6480 before it plunged 132 pips, a 2% drop, to a low of 0.6348 swiftly. This sudden movement was largely due to the rapid unwinding of the popular "Japan trade".

The "Japan trade" is characterised by long positions on the Nikkei and short positions on the Japanese yen (JPY). This unwind significantly impacted the AUD/USD and the AUD/JPY cross rate, amidst rising risk aversion due to worries that the US economy might enter a recession, spurred by a weaker-than-expected non-farm payrolls report.

Aussie battler shows resilience

The AUD/USD's resilience has been notable, as discussed in recent updates. Following the RBA's hawkish communication and unexpectedly strong US economic data, the currency managed to recover, allaying fears of a looming US recession.

While risk sentiment in global equity markets will remain a driver of the AUD/USD, Thursday's jobs report, previewed below, will also have its say.

Labour force report

Date: Thursday, 15 August at 11:30am AEST

In June, the Australian economy added 50,200 jobs, surpassing the expected 20,000. The unemployment rate increased to 4.1% from 4.0% prior, following a rise in the participation rate to 66.9%, just 0.1 percentage points away from its record high of 67%. The June labour force report confirmed that the Australian labour market remains tight and is slowing gradually.

This month, the market expects the economy to add 18,000 jobs in July, and the unemployment rate will remain at 4.1%. A weaker-than-expected unemployment rate will reinforce current pricing in the interest rate market, which starts the week with a 25 basis point (bp) rate cut almost fully priced before year-end and two rate cuts fully priced by April 2025.

AU unemployment rate chart

AUD/USD technical analysis

The AUD/USD's rebound last week from multi-week trendline support at 0.6348, originating from the October 2022 low of 0.6170, keeps the currency within a messy multi-month range.

AUD/USD weekly chart

With the above in mind, the AUD/USD has likely based for the moment. However, significant improvement would require the AUD/USD to sustain above the 200-day moving average at 0.6595.Holding above this level would negate the risk of a decline back to 0.6480 and potentially set the stage for further upward movement.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 12 August 2024. 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.}