Bulls remain on the sidelines, US NFP looks for fresh momentum

• AUD/USD benefits from a modest drop in the USD, although the bulls are not convinced.
• Geopolitical risks act as a headwind for the risk-sensitive Aussie and limit the pair.
• Traders also seem reluctant and prefer to wait for the crucial US NFP report.

The AUD/USD pair is struggling to gain any meaningful traction on Friday and is expected to close to a one-week low hit the previous day amid mixed fundamentals. The dovish stance of the Reserve Bank of Australia (RBA), reiterating that interest rate cuts are unlikely in the near term, proved to be a key factor acting as a tailwind for the Aussie. Apart from this, a modest decline in the US dollar (USD) is helping the currency pair to block its recent pullback from the February 2023 high reached earlier this week.

The USD index (DXY), which tracks the greenback against a basket of currencies, for now appears to have snapped a four-day winning streak amid repositioning trades ahead of the release of monthly US employment details, closely followed. The popular Nonfarm Payrolls (NFP) could influence market expectations about the size of the Federal Reserve’s (Fed) interest rate cut in November. This will play a key role in driving demand for the USD and determining the short-term trajectory for the AUD/USD pair.

Meanwhile, investors continue to reduce their bets on more aggressive policy easing by the US central bank amid signs of a still resilient labor market. Moreover, the Institute for Supply Management (ISM) said its non-Manufacturing PMI rose to 54.9 in September, the highest level since February 2023. This, in turn, suggested that the economy remained on a solid footing in the third quarter. Apart from this, rising tensions in the Middle East should provide support for safe havens and cap the AUD/USD pair.

Hezbollah fired about 230 projectiles from Lebanon into Israeli territory on Thursday, and Israel launched attacks on Hezbollah’s intelligence headquarters in the southern suburbs of the Lebanese capital Beirut on Friday morning. In addition, Israel will carry out a very significant retaliation within days in retaliation for Tuesday’s attack of nearly 200 ballistic missiles by Iran, fueling fears of an all-out war in the region. This should help keep a lid on the perceived riskier Australian dollar (AUD).

Technical perspectives

From a technical perspective, the previous day’s breakdown momentum below the 23.6% Fibonacci retracement level of the September rally is stalling ahead of the 38.2% Fibo. level. The said support is fixed near the 0.6820 region, which should now act as a key point for short-term traders. Some further selling has the potential to pull AUD/USD below the 0.6800 level towards the 50% Fibo. level, around the 0.6780 region. The next slide could extend further towards the 61.8% Fibo. level, around the 0.6745 area, on its way to levels below 0.6700 or the 100-day simple moving average (SMA).

On the other hand, the 0.6860-0.6865 region or 23.6% Fibo. level, it now seems to act as an immediate obstacle before the 0.6900 mark. The next relevant hurdle is fixed near the 0.6940-0.6945 region, or the February 2023 high reached last month, which if cleared should allow AUD/USD to recover the psychological 0.7000 mark. Sustained strength beyond the latter will set the stage for a move towards the 0.7055-0.7060 intermediate resistance en route to the 0.7100 mark and the 2023 high around the 0.7155-0.7160 region.

AUD/USD 4 Hour Chart

(This story was corrected on October 4 at 08:10 GMT to say that geopolitical risks are acting as a headwind for the risk-sensitive Aussie, not a tailwind)