Australian Dollar Falls After Jobs Data Miss; How Much More Downside for AUD/USD?

Australian Dollar Vs US Dollar, Australia Jobs – Talking Points:

• AUD fell after Australia job data missed expectations.
• AUD/USD is now testing key support.
• What is the outlook for AUD/USD and what are the key levels to watch?

The Australian dollar dropped against than the US dollar after the Australian economy created fewer-than-expected jobs last month.

The Australian economy created 14.6k jobs in July, compared with forecasts of 15k, well below 32.6k in June. The unemployment rate rose marginally to 3.7% compared with expectations of 3.6%, Vs 3.5% in June.

AUD/USD 5-minute Chart

Chart Created by Manish Jaradi Using TradingView

The Australian jobs market has been strong with the unemployment rate hovering around five-decade lows. Today’s data could be an early sign that the jobs market could be cooling, lowering the bar for further tightening. The Reserve Bank of Australia (RBA) Governor Philip Lowe said Friday that the worst is over for inflation, though some further tightening might be needed. Markets are now showing a high chance that the cash rate will stay at 4.1% for a third month in September, but a small chance of another rate hike in November and stable rates thereafter for a year.

In contrast, minutes of the June FOMC meeting showed most participants saw fighting inflation as their top priority, echoing San Francisco Fed President Mary Daly’s remarks last week there is more work to be done by policymakers. A resilient US economy – further reinforced by this week’s stronger-than-expected US retail sales and industrial output – and a tight labour market has pushed up expectations for a November Fed rate hike. Higher for longer US rates, the outperformance of the US economy, and neutral speculative USD positioning point to continued support for the greenback.

AUD/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

Furthermore, underwhelming China macro data have added to AUD woes. Data published earlier in the week showed retail sales, industrial output, and fixed asset investment came in below expectations, reflecting the trend in recent months – the China Economic Surprise Index is just off mid-2020 (Covid levels). China is Australia’s largest export destination.

On technical charts, AUD/USD’s fall below the June low of 0.6600 has triggered a double top pattern (the June and July highs), pointing to a drop toward 0.6300. For now, though, the pair looks deeply oversold on the daily charts as it tests a vital cushion on a downtrend line from early 2023 (see the daily chart).

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish