- AUD/USD has lost the bullish bias on the charts and is sinking towards a reversal point.
- The market euphoria is dissipating and focus is now on economic domestic fundamentals.
- Australian jobs data today will be critical for the RBA and AUD.
- The odds of a rate cut in February could be priced in and weigh on AUD on the outcome of a poor job.
AUD/USD is currently trading at 0.6854 having slipped below a key support area as the bulls continue to take profit from a not-so-convincing rally that had run out of momentum and bullish commitments.
The pair has travelled from a high of 0.6864 to a low of 0.6838 today, so far, extending the downside correction from 0.6938. The market euphoria has dissipated as we move into the final trading days before Christmas which means less liquidity, repatriation of US dollars and position squaring.
The themes of late have been with the Reserve Bank of Australia and a so-called ‘phase-one’ Sino/USD trade deal. The first phase of the trade deal was announced last week which sent a wave of euphoria around financial and commodity markets, supporting the Aussie to fresh swing highs.
Focus is back on the RBA
The deal averts further US levies on an additional $160 billion in Chinese imports that were set to take effect last Sunday. US markets hit fresh record highs in all three benchmarks at the start of the week, although the Aussie was unable to fully capitalise on the continued positive headlines and instead bled out from the initial spike to 0.6938. Instead, there was a focus on RBA and its minutes for December as well as key data for the week ahead.
The highlight in the minutes was that members had “agreed that it would be important to reassess the economic outlook in February 2020.” This has lead to the suspicion that such a reassessment could end up in a rate cut if, what the “gentle turning point” as identified by the RBA is still evident. It will be crucial, in that respect, that Sino/US trade deal traction continues to evolve. We have also seen a fall in the weaker-than-expected third-quarter Gross Domestic Product as well as Retail Sales.
This now brings us to today’s labour market data which will also be key for the RBA. “Further weakness will mean labour market conditions can no longer be characterised as “broadly unchanged since earlier in the year” and will, in our view, be the catalyst for a rate cut in February,” analysts at ANZ Bank argued.
AUD/USD levels
AUD/USD bulls are on a razor’s edge at this juncture. AUD/USD has failed to hold at the descending prior resistance and there is now a focus on the trendline support below the 21-day moving average. The support comes in around 0.68 the figure. AUD/USD bulls are looking for the 21-day moving average to hold for re-test of the 200-DMA for a constructive long beyond 0.6930. However, should the jobs data disappoint, an extension of the broader downtrend could be in the making. The 0.6750s will then be the first inflection point ahead of the October lows of 0.6671.
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