AUD/USD weekly outlook: June 10th 2024

What a difference one report can make. Friday’s strong NFP report saw the US dollar surge and unwind all of the prior week’s losses  within a couple of hours. And that leaves hopes of a September Fed cut in tatters. The 272k jobs added blew away the 182k expected and earnings was also higher, which saw traders look past unemployment rising to a 2-year high of 4%. The USD index rose 1.4% from the day’s low to high on Friday and AUD/USD suffered its worst day’s performance in five weeks.

It will be a slow start to the week with public holidays in Australia and Hong Kong and local stock exchanges closed. Apart from NAB's business confidence report on Tuesday and CPI data from China on Wednesday, we need to wait until Wednesday night before things likely kick off.

The US releases a key inflation report just hours ahead of an FOMC meeting, which leaves plenty of opportunity for volatile swings during the sleeping hours of those in APAC. But with employment figures coming in so hot, it could take a particularly soft set of inflation figures to revive hopes of a September cut. Whereas a hot set of inflation figures could send yields and the US dollar higher still.

Australia’s labour force report on Thursday is the main domestic event, although it seems unlikely to be a major event. We know the economy is slowly softening, yet employment figures remain fairly decent. So, we’d need to see a particularly poor set of data to rekindle hopes of an RBA cut. 30k jobs are expected to have been added in May, down from 38.5k in April. Unemployment is expected to cool to 4% from 4.1%.

It is worth noting that since 2007, the headline jobs figure has beaten forecasts 62.2% of the time, come in below 36.8%, and on target 0.96%. This suggests a very low probability of it coming in at 30k, with roughly a 2/3 chance of it being above 30k. If coupled with 4% unemployment or lower, then it is hard to justify an RBA cut any time soon. As of Friday’s close, RBA cash rate futures imply just a 5% chance of a 25bp cut at their next meeting.

AUD/USD 20-day rolling correlation

• The 20-day correlation between the USD index and AUD/USD has lowered to 0.8%, although Friday’s price action shows the relationship remains strong
• Correlations with gold, copper, and oil curled higher over the past week, with gold being the strongest correlation at 0.68 and WTI seemingly uncorrelated at 0.1
• AUD/USD’s relationship with iron ore remains non existent, with a reading of -0.02

AUD/USD futures – market positioning from the COT report:

AUD/USD technical analysis

The Australian dollar rolled over almost perfectly at 67c, near the 100-week EMA and formed a bearish engulfing/outside week. AUD/USD also saw a weekly close beneath the 50-week EMA, although it is trying to hold above the 20-week EMA. The selloff did not come without warning, after it twice failed to close above 67c over the prior three weeks. The weekly RSI (14) is on the cusp of falling below 50.

The severity of Friday’s selloff is apparent on the daily chart, with a clear close below the prior week’s lows. Although it was the 200-day EMA which came to the rescue alongside the 20-week EMA, with a 38.2% Fibonacci level also providing a helping hand. AUD/USD is likely to appeal to bearish swing traders should it manage to bounce from current levels, with the monthly pivot point (0.6612) and consolidation lows (0.6632) making potential resistance areas for bears to consider fading into.

The 200-day EMA and 50% retracement level around 0.6558 is the next support level should prices break beneath Friday’s low. Bears could then target 0.6500 near the monthly S2 and 61.8% Fibonacci level should the US dollar continue to strengthen.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge