AUD/USD: the pair faces volatility amid US CPI reports and China's economic moves

A rough end to last week saw the AUD/USD take a hit due to a strong US CPI report and risk-aversion selling, closing below 0.6300c for the first time since November. While geopolitical factors are likely to continue steering the market for now, better news from China has emerged in recent weeks. China's economic outlook remains a significant medium-term driver for the Australian dollar.

The official Purchasing Managers' Index (PMI) for September, released in late September, exceeded expectations. Last week, reports indicated that China was contemplating a new round of stimulus to meet its government growth target of around 5%. Today, the People's Bank of China (PBoC) executed its largest medium-term liquidity injection (289 billion yuan) since 2020.

This week, key local events include the release of the October Reserve Bank of Australia (RBA) meeting minutes and a preview of the September labour force data.

AU labour force report

Date: Thursday, 19 October at 11:30 pm AEDT

In August, the Australian economy delivered a positive surprise as it added 64.9k jobs, surpassing the expected 25k. The unemployment rate remained stable at 3.7%, despite a rise in the participation rate to 67% from 66.9%.

The Australian Bureau of Statistics (ABS) noted that the significant increase in employment in August followed a minor drop in July, influenced by the school holiday period.

For September, the market is looking for a +25k rise in employment, with the unemployment rate expected to remain stable at 3.7%. The participation rate is also anticipated to remain unchanged at 67.0%.

AU unemployment rate chart

AUD/USD technical analysis

As of the end of last week, the AUD/USD declined sharply, reaching an early October low of 0.6285. However, diplomatic efforts and poor weather conditions prevented further escalation in Middle Eastern geopolitical tensions over the weekend. This led to a partial reversal of the safe-haven flows, helping the AUD/USD to regain some ground above 0.6300c.

While this could suggest a potential double bottom at 0.6285, a more optimistic outlook will only materialise if the AUD/USD clears the resistance area of 0.6520/30. Until that happens, downside risks remain.

AUD/USD daily chart

• _{TradingView: the figures stated are as of October 16, 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.}