Market update: Australian dollar drops on mixed jobs data, ahead of CPI
The Australian dollar crumbled after today’s jobs numbers; the RBA meeting has taken on a new light with inflation in its sights; and the market is eyeing next week’s CPI. Will it drive AUD/USD direction?
The Australian dollar weakened today after a mixed reading from the latest employment report from the Australian Bureau of Statistics (ABS). It had already appeared vulnerable going into the figures.
The unemployment rate came in at 3.6% in September below the 3.7% anticipated and prior. 6.7k Australian jobs were added in the month, which was less than the 20k expected to be added and 64.9k previously. Unfortunately, 39.9k full time jobs were lost while 46.5k part time roles were added; and the participation rate fell from 67.0% to 66.7%, assisting the headline unemployment rate to inch lower.
The RBA left rates unchanged earlier this month at 4.10% but there have been some notable developments since then. It started with Reserve Bank of Australia (RBA) assistant Governor Chris Kent on Wednesday last week.
While he highlighted the problems around the time lags in the transmission effect of monetary policy, he went on to say, “Some further tightening may be required to ensure that inflation, that is still too high, returns to target.”
The RBA seems hawkish
Then earlier this week, the RBA meeting minutes were released, and they showed that the board was far closer to hiking than the statement on monetary policy said at the time.
Specifically, the minutes stated, “The Board has a low tolerance for a slower return of inflation to target than currently expected. Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.”
Compounding the hawkish tilt, RBA Governor Michele Bullock spoke at a summit yesterday and pointed to the problems of external events triggering inflation when they arrive one after the other.
She said, “the problem is we’ve had shock after shock after shock. The more that keeps inflation elevated, even if it’s from supply shocks, the more people adjust their thinking.”Before adding, “And the more people adjust their inflation expectations, the more entrenched inflation is likely to become. So that’s the challenge.”
All eyes on CPI data
All of this brings next Wednesday’s Australian CPI data for the third quarter into sharp focus for the aussie dollar. A Bloomberg survey of economists is anticipating headline inflation to be 5.2% year-on-year against 6.0% previously, well above the RBA’s mandated target of 2 – 3%.
A wide variation from expectations could trigger a bout of volatility for AUD/USD. In the near term, Treasury yields have been climbing higher, underpinning the US dollar and this may see AUD/USD test lower levels if yields continue higher.
AUD/USD price reaction to jobs data
AUD/USD technical analysis
AUD/USD bounced off the low of 0.6286 to start the week, and if the price fails to move below that level, a Double Bottom might be in place.
Overall, it remains in a descending trend channel and bearish momentum might be intact for now. A bearish triple moving average (TMA) formation requires the price to be below the short-term Simple Moving Average (SMA), the latter to be below the medium-term SMA and the medium-term SMA to be below the long-term SMA. All SMAs also need to have a negative gradient.
When looking at any combination of the 21-, 34-, 55- 100- and 200-day SMAs, the criteria for a bearish TMA have been met and might suggest that bearish momentum is evolving.
Last Wednesday’s high of 0.6445 coincided with the 55-day Simple Moving Average (SMA) and that level may offer resistance ahead of a cluster of prior peaks in the 0.6500 – 0.6510 area. Further up, the 0.6600 - 0.6620 area might be another resistance zone with several breakpoints and previous highs there.
On the downside, support may lie near the previous lows of 0.6286, 0.6272 and 0.6170. The latter might also be supported at 161.8% Fibonacci Extension level at 0.6186.
AUD/USD daily chart
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
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. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Explore the markets with our free course
Discover the range of markets you can spread bet on - and learn how they work - with IG Academy's online course.
Turn knowledge into success
Practice makes perfect. Take what you’ve learned in this index strategy article, and try it out risk-free in your demo account.
Ready to trade indices?
Put the lessons in this article to use in a live account. Upgrading is quick and simple.
- Get fixed spreads from 1 point on FTSE 100 and Germany 40
- Protect your capital with risk management tools
- Trade more 24-hour markets than any other provider – 26 in total
Inspired to trade?
Put the knowledge you’ve gained from this article into practice. Log in to your account now.
Live prices on most popular markets