Australian dollar surges higher after moderate jobs numbers

• Aussie recovers daily losses after moderate jobs data.
• The commodity-linked AUD faced challenges as subdued demand and a glut of commodities put pressure on market prices.
• The US dollar suffered losses following moderate consumer price index data released on Wednesday.

The Australian dollar (AUD) appreciates following the moderate release of employment data on Thursday. However, the Australian dollar faced challenges against the US dollar (USD) due to lower copper and iron ore prices. The decline is exacerbated by China’s worsening credit data, which, combined with subdued demand and a commodity glut, has put additional pressure on markets.

The AUD/USD pair is under downward pressure as investors assess the Reserve Bank of Australia’s (RBA) monetary policy stance. Despite strong second-quarter wage growth keeping the RBA’s outlook steady, RBA governor Michele Bullock ruled out any rate cuts in the next six months. Bullock stressed that Australia’s central bank remains vigilant about inflation risks and is prepared to raise rates further if necessary.

The US dollar faces challenges after Wednesday’s consumer price index (CPI) data showed a moderate pick-up in the annual US inflation rate since July. Investors are likely debating how much the Federal Reserve (Fed) will cut rates in September. While traders are leaning toward a more modest cut of 25 basis points with a 60% probability, a cut of 50 basis points remains a possibility. According to CME FedWatch, there is a 36% chance of a bigger cut in September.

Daily Digest Market Movers: Australian dollar surges higher after jobs data

• Employment change in Australia is reported at 58.2K for July, beating expectations of 20.0K and the previous reading of 52.3K. However, the Unemployment Rate rose to 4.2%, beating market expectations to remain steady at 4.1%. In addition, consumer inflation expectations for August rose to 4.5%, up from the previous reading of 4.3%.
• Federal Reserve Bank of Chicago President Austan Goolsbee on Wednesday expressed growing concern about the labor market rather than inflation, noting recent improvements in price pressures alongside weak jobs data. Goolsbee added that the extent of rate cuts will be determined by prevailing economic conditions, according to Bloomberg.
• The US consumer price index (CPI) rose 2.9% year-on-year in July, down slightly from June’s 3% rise and below market expectations. Core CPI, which excludes food and energy, rose 3.2 percent year-on-year, down slightly from June’s 3.3 percent rise but in line with market forecasts.
• On Tuesday, Atlanta Fed President Raphael Bostic said recent economic data boosted his confidence that the Fed can hit its 2 percent inflation target. However, Bostic indicated that further evidence is needed before endorsing a rate cut, according to Reuters.
• The US producer price index (PPI) rose 2.2% from a year ago in July, from 2.7% in June, coming in below market expectations of 2.3%. Meanwhile, core PPI rose 2.4% year-on-year in July, up from a previous reading of 3.0%. The index fell below an estimate of 2.7%. Core PPI remained unchanged.
• Australia’s Westpac consumer confidence rose 2.8% in August, swinging from a 1.1% drop in July. Meanwhile, the wage price index was flat, rising 0.8 percent in the second quarter, slightly below market expectations for a 0.9 percent rise.
• Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser on Monday attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
• On Sunday, Federal Reserve Governor Michelle Bowman said she continues to see upside risks to inflation and continued strength in the labor market. This suggests the Fed may not be ready to cut rates at their next meeting in September, according to Bloomberg.

Technical Analysis: Aussie drops to near 0.6600

The Australian dollar is trading around 0.6590 on Thursday. Daily chart analysis indicates that the AUD/USD pair is testing the lower boundary of an ascending channel, suggesting a bullish bearish trend. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly below the 50 level, confirming a strengthening bearish momentum.

In terms of support, the lower boundary of the ascending channel around 0.6590 serves as an immediate support level for the AUD/USD pair. A break below this level could see the nine-day EMA test at 0.6580, followed by the retracement level at 0.6575. If the pair breaks below this support region, it could solidify a bearish outlook, potentially leading it towards the retracement level at 0.6470.

On the upside, AUD/USD could explore the area around the upper limit of the ascending channel at the 0.6690 level. A breakout above this level could push the pair towards the six-month high of 0.6798 reached on July 11.

AUD/USD: Daily chart