Australian dollar remains weak following employment data

• The Australian dollar is down despite a stronger-than-expected increase in new jobs created in August.
• Employment change in Australia rose by 47.5k in August, beating the consensus forecast of 25.0k.
• The Federal Reserve’s sharp interest rate cut signals its commitment to protecting the labor market and protecting the economy from recession.

The Australian dollar (AUD) snaps a three-day winning streak against the US dollar (USD) following Thursday’s labor market report. Additionally, traders continue to weigh in on the Federal Reserve’s (Fed) 50 basis point (bps) interest rate cut on Wednesday.

Employment change in Australia came in at 47.5k in August, down from 58.2k in July but well above the consensus forecast of 25.0k. The unemployment rate was steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).

The Federal Open Market Committee (FOMC) cut the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in four years. This move signals the Fed’s commitment to protect the labor market and steer the economy away from any sign of recession.

Federal Reserve Chairman Jerome Powell said during a press conference after the monetary policy meeting: “This decision signifies our increased confidence that, with the right adjustment of our policy approach, we can sustain a strong labor market, achieving at the same time moderate economic growth and falling inflation. at a sustainable level of 2%.”

Daily Digest Market Movers: Aussie down despite stronger labor shift

• Fed policymakers updated their quarterly economic forecasts, raising the average projection for unemployment to 4.4 percent by the end of 2024, up from the 4 percent estimate made in June. They also raised their long-term projection for the federal funds rate from 2.8 percent to 2.9 percent.
• JP Morgan CEO Jamie Dimon said Tuesday that if the Federal Reserve cuts interest rates by 25 or 50 basis points, the impact “will not be earth-shattering.” Dimon stressed, “They have to,” but noted that such moves are relatively minor in the grand scheme of things because “there’s a real economy” operating under the Fed’s rate swings, according to Bloomberg.
• US retail sales rose 0.1% month-on-month in August after a revised 1.1% rise in July, beating expectations for a 0.2% decline and pointing to resilient consumer spending. Meanwhile, the Retail Sales Control Group rose 0.3%, slightly below the previous month’s 0.4% increase.
• Australian ANZ-Roy Morgan consumer confidence rose 1.8 points to an eight-week high of 84.1. While ANZ notes that growth has been broad-based, confidence remains firmly in pessimistic territory.
• Economists at Goldman Sachs and Citi cut their forecasts for China’s GDP growth in 2024 to 4.7 percent, missing Beijing’s target of around 5.0 percent. SocGen describes the situation as a “downward spiral”, while Barclays calls it “from bad to worse” and a “vicious circle”. Morgan Stanley also warns that “things could get worse before they get better,” according to a Reuters report.
• The University of Michigan’s consumer sentiment index rose to 69.0 in September, beating market expectations of a 68.0 reading and marking a four-month high. This increase reflects a gradual improvement in consumers’ outlook on the US economy after months of declining economic expectations.
• China’s economy weakened in August, with industrial activity continuing to slow and property prices falling, as Beijing faces mounting pressure to boost spending to boost demand. According to Business Standard, this was reported by the Office for National Statistics on Saturday.
• Reserve Bank of Australia (RBA) Michele Bullock said it was premature to consider interest rate cuts because of persistently high inflation. In addition, RBA Deputy Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical analysis: Aussie drops to near 0.6750; the next support at the nine-day EMA

AUD/USD is trading near 0.6750 on Thursday. Technical analysis of the daily chart shows that the pair is positioned below the lower limit of a rising wedge pattern, signaling a potential bearish reversal. However, the 14-day Relative Strength Index (RSI) remains slightly above the 50 mark, indicating that a bullish trend may still be in play.

On the upside, AUD/USD may test a seven-month high of 0.6798, followed by the lower bound of the rising wedge at 0.6810. A return to the rising wedge would strengthen the uptrend and push the pair towards the upper boundary of the rising wedge at the 0.6840 level.

On the downside, the AUD/USD pair may test the nine-day exponential moving average (EMA) at 0.6733, with the next support at the psychological level of 0.6700. A break below this level could push the pair towards the support area for a retracement around 0.6575.

AUD/USD: Daily chart