AUD/USD rebound takes shape ahead of Australia employment report

Rebound takes shape ahead of employment report

AUD/USD seems to have reversed course ahead of the June 2020 low (0.6648) amid recovery in global benchmark equity indices, with the exchange rate trading to a fresh weekly high (0.7041) as the Reserve Bank of Australia (RBA) Minutes reveals that ‘timely evidence from liaison and business surveys indicated that labour costs were rising in a tight labour market and a further pick-up was likely over the period ahead.’

As a result, the RBA insists that ‘that further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time,’ and the update to Australia’s Employment report may generate a bullish reaction in AUD/USD as the economy is anticipated to add 30.0K jobs in April.

At the same time, the Unemployment Rate is seen narrowing to 3.9% from 4.0% during the same period, and the ongoing improvement in the labour market may encourage the RBA to deliver a series of rate hikes over the coming months as the central bank acknowledges that 'there is no contemporary experience as to how labour costs and prices in Australia would behave at an unemployment rate below 4 per cent.'

In turn, AUD/USD may stage a larger recovery ahead of the next RBA meeting on June 7 as Governor Philip Lowe and Co. prepare Australian households and businesses for higher interest rates, and a further advance in the exchange rate may alleviate the tilt in retail sentiment like the behaviour seen earlier this year.

The IG Client Sentiment report shows 66.17% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 1.96 to 1.

The number of traders net-long is 6.18% lower than yesterday and 15.62% lower from last week, while the number of traders net-short is 12.24% higher than yesterday and 26.92% higher from last week. The decline in net-long position comes as AUD/USD climbs to a fresh weekly high (0.7041), while the jump in net-short interest has helped to alleviate the crowding behavior as 74.02% of traders were net-long the pair last week.

With that said, another uptick in Australia Employment may fuel the recent series of higher highs and lows in AUD/USD as it fuels speculation for another RBA rate hike, but the rebound from the yearly low (0.6829) may turn out to be a correction in the broader trend with the Federal Reserve on track to normalize monetary policy at a faster pace.

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