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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Market update: Australian dollar slides after dismal jobs data

AUD/USD’s broader trend remains up; most recently, the relative economic growth underperformance has weighed on AUD/USD and what are the levels that could threaten AUD/USD’s broader uptrend?

Source: Bloomberg

AUD/USD technical forecast - bullish

The recent retreat in the Australian dollar against the US dollar is a reflection of the divergence in the economic growth outlook of the two economies. This morning’s slide following dismal Australian jobs was no exception - employment fell for a second straight month in January while the jobless rate jumped to its highest level since May.

AUD/USD, down nearly 4% since the start of this month, has been guided by the relative underperformance of the Australian economy, as reflected in the Economic Surprise Indices (ESI). The Australian ESI is languishing around the 2020 lows, while its US counterpart is at the highest level in ten months.

The better-than-expected US data recently have translated into a marginal upgrade in consensus US economic growth expectations for 2023. In contrast, Australia's economic growth outlook for the current year continues to be downgraded.

AUD/USD Vs Australia Economic Surprise Index (ESI) relative to US ESI

Source: Bloomberg; created in excel by Manish jaradi

Importantly, the subdued Australian economic data raise the question as to how long the RBA can continue to remain hawkish, while surprisingly strong US data recently mean that a Fed pause is still some way off. Moreover, the optimism over China’s reopening and rising commodity prices have supported AUD.

However, it remains to be seen if the reopening translates into higher consumer spending (pent-up demand) via tourism spending or a pick-up in broad-based demand, including commodities. In this regard, industrial commodity prices have been softening since late January.

AUD/USD daily chart

Source: TradingView

On technical charts, AUD/USD is approaching crucial support on a horizontal line since mid-December at about 0.6900. A break below would confirm that the four-month-long upward pressure had faded, exposing downside risks toward the December low of 0.6625, near the lower edge of the Ichimoku cloud.

The broader uptrend is unlikely to reverse while AUD/USD holds above 0.6625.

The previous update highlighted the risk of a minor retreat after AUD/USD ran into a major ceiling: the 200-week moving average, coinciding with the 89-week moving average and the August high of 0.7135. So far, on the daily charts, AUD/USD remains bullish but could shift to Neutral if it decisively breaks below 0.6900.

AUD/USD weekly chart

Source: TradingView

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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