AUD/USD climbs on US data, eyes RBA minutes amid job market concerns

Last week saw a second straight week of gains for the AUD/USD - a beneficiary of the greenback weakness, that followed softer-than-expected US retail sales data and hotter-than-expected US CPI and PPI data.

The rally in the AUD/USD came despite a softer-than-expected Australian jobs report, as the unemployment rate surged to a two-year high at 4.1.% While the ABS suggested the weakness was a result of changing seasonal dynamics, we think it reinforces the underlying trend of cooling in the labour market. Therefore, increasing the chance of RBA rate cuts in the second half of the year.

This week's critical local economic events for the AUD/USD are Tuesday's RBA meeting minutes, previewed below, and wages data on Wednesday, expected to increase by 0.9% in the quarter and 4.1% annually.

What is expected from this week's RBA meeting minutes (Tuesday, 22 February at 11.30am)

The minutes from the Reserve Bank of Australia’s February meeting are scheduled to be released on Tuesday, 22 February at 11.30am.

At its board meeting in February, the RBA kept its official cash rate on hold at 4.35%, as widely expected. The RBA noted that higher interest rates were working to reduce inflation, and to achieve a better balance between supply and demand.

"Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.”

The RBA confirmed that it remains data-dependent and retained a weak tightening bias.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out. "

The minutes will be closely scrutinised around what options the RBA board considered at the February meeting, the factors that would prompt the RBA to act on its tightening bias in 2024, and any clues about what might see the bank offer a more neutral bias.

RBA cash rate chart

AUD/USD technical analysis

Recently, we have been looking for the AUD/USD to stabilise and move higher based on the idea that the pullback from the December .6871 high is part of a correction rather than a reversal lower.

However, last week's break below .6500c, to Tuesday’s .6442 low has created a degree of technical damage and cast doubt over this interpretation. While the AUD/USD remains below the .6540/65 resistance zone, which includes the 200-day moving average, the risks are for a retest of .6442 low with scope to a lower band of support at .6400/.6380.

Aware that a sustained move above the .6540/65 resistance zone would negate the downside risks and open the way for a stronger recovery towards initial resistance at .6620/30 before .6700c.

AUD/USD daily chart

• ^{Source:TradingView. The figures stated are as of 19 February 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.}