Busy morning for Aussie Dollar. Prices was remarkably supported during Asian hours following the worst than expected Employment Change which grew 9.1K versus the expected 15K, with AUD/USD dipping to 0.9425 immediately following the announcement but eventually hitting a high of 0.9473 all in the space of 5 minutes. This rally is not exactly unreasonable as market has decidedly gave more weightage to the fall of 0.2% in unemployment rate. But it should be noted that the drop in unemployment rate is mostly attributed by the fall in Participation Rate and less on the gain in numbers employed, taking away the shine off. Therefore it is also not surprising that AUD/USD started to climb down shortly after the rally as the reason for rally is not that strong to begin with.
From a technical perspective, despite trading below the initial sell off (0.9245) post Employment Change release, prices is finding support between 0.939 – 0.941. Given that market is of 2 minds about Australia’s employment data, it is not unreasonable to expect a technical pullback from here as fundamentals have failed to provide strong directional clarity. Stochastic indicator agrees, with readings rebounding from the lows within the Oversold region and is on the verge of pushing above 20.0 and giving us a bullish cycle signal. However, it is important to note that the signal is not yet formed and prudent traders should wait for a proper bullish cycle signal which will likely coincide with price pushing above 0.941 and preferably above 0.942 soft resistance for a move towards 0.947/0.948 target.
Weekly chart price action also suggest that further bullish momentum is possible with 0.96 being the ultimate bullish target. However with Stochastic readings already within Overbought region, it is difficult to imagine prices being able to push beyond the ceiling on this bullish momentum alone especially when Stoch curve is tapering flatter and will most likely peak price hits 0.96.
Fundamentally, AUD/USD is bulls are enjoying short-term gains due to weakness in USD. The continual non-resolution of US Debt Ceiling and Government Shutdown has been weighing USD down. On AUD front, Central Bank RBA has been sounding the least dovish in 2 years with Governor Stevens suggesting that there will not be any further rate cuts next few months. Market is even more hawkish than Stevens – Overnight Index Swap is pricing a 0% rate cut by RBA within the next 12 months.
However, these fundamental issues are unlikely to continue in the long run. US is expected to come out of this whole kerfuffle unscathed, while pass Australia’s rate cute appears not to be doing anything much with most other economic indicators suggesting that slowdown is continuing. Hence RBA will be forced to ease further or perhaps even introduce some sort of stimulus package as Australia government has vowed to remain on the austerity path in order to keep Australia’s current account sound. Any easing/stimulus introduction will definitely drive AUD lower, and coupled with eventual USD strength, the downside narrative for long-term AUD/USD is clear.
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