Possibility of further reprieve for AUD/USD ahead of AU jobs data?

Improved sentiment overnight towards US banks and, more broadly, towards financial stability led to a rally in risk assets overnight, including the AUD/USD.

The rally in the AUD/USD overnight came despite a warmer-than-expected US inflation print, which showed the deceleration in core inflation (core inflation in February rose 0.5% vs 0.4% exp) has stalled. As well as weaker-than-expected Australian Consumer and Business confidence data released yesterday.

Specifically, the Westpac consumer confidence index remained unchanged at 78.5 (recessionary levels) and contained a rise in unemployment expectations and a fall in spending intentions. Australian Business Confidence fell 10 points to -4 in February, the lowest since last November. Both indicate a slowdown is underway as the full impact of the RBA's rate hiking cycle takes effect.

Attention now turns to the Australian Labour Force report which will be released on Wednesday, 11.30am AEDT.

What is "expected?"

Several factors suggest a rebound in employment is likely after two consecutive monthly declines. The most recent forecast has the market looking for a gain in employment of 45k and for the unemployment rate to fall to 3.6%.

What would constitute a surprise?

Should the unemployment rate disappoint and print at 3.7% or higher, it may well see the RBA move to the sidelines in April and spark further conversation around RBA rate cuts into the second half of this year. This would be a positive for the ASX 200 and a negative for the AUD/USD.

Conversely, should the unemployment rate print at 3.5% or lower, it would push back talk of an RBA pause until May, pending the release of Q1 2023 CPI data on April 26. This would be a negative for the ASX 200 and a small net positive for the AUD/USD.

AUD/USD technical analysis

Last week the AUD/USD closed 2.57% lower at .6583, battered by the heavyweights of a dovish RBA, a hawkish Fed and risk aversion selling. The clean break of support at .6700/80 negated our positive bias and resulted in a negative bias looking for .6500c, leaning again the band of resistance at .6700c/.6800c, which includes the 200-day MA.

The downside follow-through we were expecting has not eventuated and has weakened our bearish conviction.

This is partially due to the dramatic repricing in the rates market following the regional banking failures over the weekend that now sees interest rate cuts priced into the curve for the US. and Australia in the second half of this year.

Nonetheless, we will remain with the negative bias unless the AUD/USD were to see a break above the downtrend resistance at .6710 and, more importantly, a sustained break back above .6800c.

AUD/USD daily chart