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AUSTRALIAN DOLLAR TALKING POINTS

AUD/USD pares the decline from earlier this week as fresh updates to Australia’s Employment report instills an improved outlook for the region, and the aussie-dollar exchange rate may stage a larger recovery over the coming days as the bearish momentum from earlier this year dissipates.

Image of daily change for major currencies

AUD/USD Risks Larger Recovery as Bearish Momentum Unravels

Image of daily change for AUDUSD

Despite the initial downtick in AUD/USD, the 22.6K expansion in job growth overshadows the downward revision for the March reading as the advance was led by a 32.7K expansion in full-time positions.

Image of DailyFX economic calendar

A deeper look showed the uptick in the Unemployment Rate was largely driven by an unexpected pickup in the Participation Rate as discouraged workers returned to the labor force, and the ongoing improvement in employment may push the Reserve Bank of Australia (RBA) to gradually change in the second-half of 2018 as ‘members agreed that it was more likely that the next move in the cash rate would be up, rather than down.

For the time being, it seems as though Governor Philip Lowe and Co. is in no rush to lift the cash rate off of the record-low as officials expect ‘spare capacity in the labour market would remain for some time,’ and the central bank may continue to buy more time at the next meeting on June 5 as ‘household income has been growing slowly and debt levels are high.’ With that said, AUD/USD may continue to track the downward trend from earlier this year especially as the Relative Strength Index (RSI) highlights a similar dynamic, but recent price action raises the risk for a larger rebound as the aussie-dollar exchange rate snaps the series of lower highs & lows from earlier this week.

AUD/USD DAILY CHART

Image of AUDUSD daily chart
  • Broader outlook for AUD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) extend the bearish formation from earlier this year, but the pair may stage a larger rebound over the coming days as it snaps the series of lower highs & lows from the previous week.
  • Failure to test the monthly-low (0.7412) raises the risk for a more meaningful run at the 0.7590 (100% expansion) hurdle, with a break/close above the stated region opening up the next area of interest around 0.7650 (38.2% retracement).
  • Need to keep a close eye on the RSI as it continues to come off of oversold territory, with a break of trendline resistance raising the risk for a near-term correction in AUD/USD as the bearish momentum unravels.

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.