AUD/USD falls to lowest in four weeks ahead of key employment data

Following a robust rally in May, AUD/USD traders faced an all-too-familiar story last week. The pair fell 1.40%, for its worst weekly decline in nine weeks.

Behind the disappointing price action, was a weak Australian Q1 2024 GDP print. Which increased the chance of Reserve Bank of Australia (RBA) rate cuts before year-end. This was followed by a robust US Non-farm payrolls release, consequently reducing the chances of a Fed rate cut in September from nearly 80% to about 50%.

Confidence falls

Another round of soft domestic data has followed today. NAB Business confidence fell to -3 in May from an upwardly revised 2 in April. Turning negative for the first time since November.

Confidence was lower in manufacturing, transport and utilities, construction, recreation, and personal services. Against the backdrop of softer growth, labour cost growth increased to 2.3%. Increasing from 1.5% prior and purchase cost growth increased to 1.9% from 1.3%, in quarterly equivalent terms.

Aside from this week's US CPI data and Thursday morning's FOMC meeting driving AUD/USD. The key local driver for the AUD/USD will be Thursday's employment report, previewed below.

Labour force report

Date: Thursday, 13 June at 11.30am AEST

In April, the Australian economy added 38,500 jobs, stronger than forecasts of 23,700. A rise in the participation rate to 66.7% saw the unemployment rate rise sharply to 4.1% from 3.9%.

Bjorn Jarvis, ABS head of labour statistics, said:"With employment rising by around 38,000 people and the number of unemployed growing by 30,000 people, the unemployment rate rose to 4.1 per cent and the participation rate increased to 66.7 per cent."

The ABS noted that more people than usual are waiting to start work, similar to January when unemployment subsequently retraced. This means there is a risk of a sharp rebound this month.

"The 30,000 people increase in unemployment reflected more people without jobs available and looking for work, and also more people than usual indicating that they had a job that they were waiting to start in.”

Seasonal volatility aside, labour market slack is increasing, albeit from very tight levels, broadly in line with the RBA’s Q2 forecasts for 4.0%. This month, the market expects the economy to gain 25,000 jobs and for the unemployment rate to edge lower to 4.0%. The rates market starts the week pricing in a 20% probability of a 25bp RBA rate cut in December.

AUS unemployment rate chart

AUD/USD technical analysis

On the weekly chart, the AUD/USD backed away from downtrend resistance at .6730ish last week, coming from the .7158 February high. This is the second time in four weeks that the AUD/USD has shied away from this trend line resistance, and the latest setback to its upside ambitions. On the downside, uptrend support from the October 2022 .6170 low is viewed at .6360ish.

AUD/USD weekly chart

AUD/USD

To increase the chances that the AUD/USD based at the 19 April .6362 low, the AUD/USD needs to maintain altitude above the 200-day moving average at .6537. Furthermore, break above the recent .6714 high and the multi-week trendline resistance noted above at .6730ish. In this case, the next upside target would become a cluster of horizontal resistance at .6870/00 before .7000c.

On the downside, if the AUD/USD were to lose the support of the 200-day moving average at .6538. It would warn that a deeper pullback is underway towards support at .6480ish. Following the swing lows of March and April 2024, which is being reinforced by the February .6442 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 11 June 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.}