The Australian Dollar (AUD) extended its losing streak for the fifth consecutive session on Friday, driven by a strengthening US Dollar (USD) amidst heightened risk aversion. Despite this persistent decline in the AUD/USD pair, the downward momentum may face some constraints due to recent higher-than-expected Employment Change figures in Australia, which have sparked speculation about a potential interest rate hike by the Reserve Bank of Australia (RBA).
Data released by the Australian Bureau of Statistics on Thursday revealed a significant Employment Change of 50,200 in June, surpassing the market forecast of 20,000. This unexpected increase has slightly shifted investor expectations towards a possible rate hike by the RBA in August, with swap markets now indicating a 20% chance, up from 12% previously, according to Reuters. However, the Unemployment Rate did rise to 4.1% from 4.0%, contrary to expectations of stability.
The US Dollar’s strength is supported by rising US Treasury yields, yet its upside may be capped due to recent soft labor data, which has bolstered market expectations for a Federal Reserve (Fed) rate cut in September. The CME Group’s FedWatch Tool now shows a 93.5% probability of a 25-basis point rate cut at the upcoming Fed meeting, up from 85.1% a week prior.
Market Digest: Australian Dollar Faces Challenges Amid Global Economic Developments
The Third Plenary Session of the Chinese Communist Party’s 20th National Congress concluded on Thursday without substantial measures to rejuvenate China’s struggling economy. A senior Chinese economic official highlighted the need for more effective macroeconomic policy implementation, noting that China’s economic recovery remains insufficiently robust.
According to Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, the current pace of employment growth indicates resilient demand and persistent cost pressures. Langcake suggested that while the RBA is expected to maintain current rates, the August meeting remains critical. Westpac’s recent inflation summary anticipates that Australia will follow a similar disinflationary trend as other nations, given the comparable economic shocks faced.
US Initial Jobless Claims for the week ending July 12 were reported at 243,000, exceeding the expected 230,000 and rising above the previous week’s revised figure of 223,000. Fed Governor Christopher Waller indicated that the US central bank is “getting closer” to an interest rate cut, while Richmond Fed President Thomas Barkin noted that easing inflation is broadening and should continue.
On Tuesday, former President Donald Trump cautioned Fed Chair Jerome Powell against cutting interest rates before the November presidential election but suggested he would allow Powell to complete his term if re-elected and Powell “does the right thing” at the Fed. Fed Chair Powell had previously stated that recent inflation readings have added confidence that inflation is aligning with the Fed’s target, hinting at a potential shift towards rate cuts.
Technical Analysis: Australian Dollar Holds Around 0.6700
On Friday, the Australian Dollar is trading around 0.6710. Technical analysis reveals that the AUD/USD pair has fallen below an ascending channel, indicating a weakening bullish trend. The 14-day Relative Strength Index (RSI) is slightly above the 50 level; a decline below this could signal the onset of bearish momentum.
Immediate support for the AUD/USD pair is at the psychological level of 0.6700. A drop below this level could pressure the pair towards the throwback support around 0.6590. On the upside, the pair might test the lower boundary of the ascending channel near the nine-day Exponential Moving Average (EMA) at 0.6726. A return within the ascending channel could reinforce the bullish outlook and potentially drive the pair to 0.6800 before reaching the upper boundary of the channel at 0.6840.
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