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AUD/USD: Still standing strong amid RBA hold and Chinese data

Discover why the AUD/USD faced a challenging week, with RBA's rate decision and Chinese data impacting sentiment. Explore market dynamics and upcoming employment report expectations.

Source: Bloomberg

Intense market turbulence for AUD/USD

Last week was torrid for the AUD/USD, with everything, including the proverbial kitchen sink, being thrown at the little Ozzie battler as it finished the week 1.15% lower at .6377.

The aggressive selling in the AUD/USD kicked in last Tuesday after the Reserve Bank of Australia (RBA) kept rates on hold at 4.10% for a third consecutive month, and following another round of dire Chinese data, the Caixin services PMI fell from 54.1 in July to 51.8 in August.

Factors driving AUD/USD's bearish spiral

As a sign of how bearish sentiment towards the AUD/USD has become, The Commodity Futures Trading Commission (CFTC) data showed that speculative net short positions in the AUD/USD rose to -83.5k last week from -70.2k. Notably, the new shorts were added not far above the major trendline support at .6360/50, which we first highlighted on August 21st .

"The .6360/50 support level holds immense importance for the AUD/USD, stemming from the uptrend support from the Covid March 2020 low of .5509 and the .6170 low of October 2022. Experience shows that multi-week/month trend support levels seldom break on the first attempt."

Crucial support and historical context

While we don’t dispute the various reasons why the AUD/USD has attracted selling interest, we note that historically, when positioning and sentiment become too one-way in the AUD/USD, it often sets the scene for a position wash for the ages. A recent example is the almost ten, big-figure rally from the October 2022 .6170 low.

What is expected from Thursday's employment report?

This week, the key events on the local calendar are consumer and business confidence surveys on Tuesday, followed by an employment report for August on Thursday.

Last month's data showed that the rate in Australia increased to 3.7% from 3.5% as employment fell by 14.6k. The participation rate also fell, dropping to 66.7%, which surprised many, as consensus expectations were for it to remain at 66.8%.

"July includes the school holidays, and we continue to see some changes around when people take their leave and start or leave a job. It's important to consider this when looking at month-to-month changes, compared with the usual seasonal pattern."

The fall in employment last month follows an average monthly increase of around 42,000 people during the first half of this year. Employment is still around 387,000 people higher than last July.

September is looking for a +25k rise in employment and for the unemployment rate to edge lower to 3.6%. The participation rate is expected to remain unchanged at 66.7%.

AU unemployment rate chart

Source: TradingEconomics

AUD/USD technical analysis

As we have noted consistently since August 21st and again last week, providing the AUD/USD remains above weekly uptrend support at .6360/50 (from the March 2020 .5509 low), allow for the AUD/USD to explore higher levels, initially towards .6520c with scope to .6600c and then the 200-day moving average at .6700c.

Be aware that if and when the .6360/50 support level is breached on a closing basis, there may be limited downside support until reaching the .6200/.6170 range, last seen in October 2022.

AUD/USD daily chart

Source: TradingView

AUD/USD weekly chart

Source: TradingView

  • TradingView: the figures stated are as of September 11, 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.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa 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. See full non-independent research disclaimer and quarterly summary.

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