AUD/USD retreat under review

Key factors impacting the AUD/USD slide

The AUD/USD finished lower last week at 0.6750 (-0.63%), extending its decline from the 20-month high of 0.6942 reached just nine days prior. This drop was primarily driven by several factors:

• Strong US payrolls report: September US non-farm payrolls report, released earlier this month, led markets to scale back their expectations of Federal Reserve (Fed) interest rate cuts, thereby strengthening the US dollar (USD). The rates market is currently pricing in 22 basis points (bps) of Fed cuts for November, down from approximately 40 bps just weeks ago
• Geopolitical tensions: escalating geopolitical tensions in the Middle East have increased demand for the USD as a safe haven.
• US presidential race dynamics: Donald Trump's rising prospects in the presidential race suggest potential higher trade tariffs and the risk of a global trade conflict, further supporting the USD
• Chinese stimulus disappointment: the climb to the 0.6942 high was partly driven by anticipation of fiscal stimulus from China following a dovish pivot in late September. However, the absence of such stimulus has led to a retracement of those gains.

While further USD strength cannot be dismissed ahead of the US election, the key drivers for the AUD/USD moving forward will likely be Thursday’s jobs data and ongoing speculation on Chinese stimulus ahead of the China National People's Congress (NPC) Standing Committee meeting later this month.

Employment

Date: Thursday, 17 October at 11.30am AEDT

Last month, the Australian economy added 47,500 jobs, surpassing the market's expectation of a 25,000 gain. The unemployment rate remained stable at 4.2%, its highest since November 2021, while the participation rate held at a record high of 67.1%.

Kate Lamb, Australian Bureau of Statistics (ABS) Head of Labour Statistics, stated, "The number of unemployed people fell by around 10,000, while the number of employed people grew by around 47,000 in August. This resulted in the unemployment rate remaining steady at 4.2 per cent and the participation rate remaining at its record high of 67.1 per cent."

Last month's employment rise exceeded expectations, with the labour market cooling more slowly than anticipated. However, the high participation rate gives the Reserve Bank of Australia (RBA) time to hold rates steady and observe incoming data.

This month, the preliminary expectation is for the Australian economy to create 25,000 jobs, with the unemployment rate remaining at 4.2%. The Australian interest rate market is pricing in 10 bps of RBA rate cuts for December and 46 bps by May 2025.

AU unemployment rate chart

AUD/USD technical analysis

Two weeks ago, the AUD/USD, as seen on the weekly chart below, rejected multi-month downtrend resistance at 0.6900/10c, stemming from the 0.8007 high of February 2021 and the 1.1081 high from July 2011.

AUD/USD weekly chart

The AUD/USD is currently trading at 0.6727, consolidating its recent decline from the 0.6942 high, just above last Thursday's four-week low of 0.6701. While the AUD/USD remains above 0.6700c, there is potential for a rebound towards resistance at 0.6825.

A sustained break below support at 0.6700c, would likely extend the sell-off towards the next level of downside support at 0.6627, which aligns with the 200-day moving average.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 14 October 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.}