AUD/USD to Defend Monthly Opening Range on Upbeat Australia Jobs Report

Australian Dollar Talking Points

AUD/USD appears to have reversed course following the failed attempt to trade above the 200-Day SMA (0.7548), but fresh data prints coming out of the Australia may curb the recent decline in the exchange rate as job growth is expected to bounce back in October.

AUD/USD to Defend Monthly Opening Range on Upbeat Australia Jobs Report

AUD/USD carves a bearish outside day candle as it gives back the advance from the start of the week, and the exchange rate may continue to give back the advance from the October low (0.7192) as it appears to be on track to snap the opening range for November.

However, AUD/USD may attempt to defend the monthly low (0.7360) as Australia’s Employment report is anticipated to show the economy adding 50K jobs in October, while the Unemployment Rate is seen widening to 4.8% from 4.6% during the same period as discouraged workers return to the labor force.

A positive development may push the Reserve Bank of Australia (RBA) to adopt a hawkish forward guidance as the central bank removes its yield-curve control (YCC) program, and it remains to be seen if the central bank will show a greater willingness to implement higher interest rates sooner rather than later as “the decision to discontinue the yield target reflects the improvement in the economy and the earlier-than-expected progress towards the inflation target.”

At the same time, a weaker-than-expected employment report may produce headwinds for the Australian Dollar as it encourages the RBA to retain the current policy at the next interest rate decision on December 7, but a further decline in AUD/USD may fuel the recent flip in retail sentiment like the behavior seen earlier this year.

The IG Client Sentiment report shows 53.35% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 1.14 to 1.

The number of traders net-long is 3.39% lower than yesterday and 12.48% higher from last week, while the number of traders net-short is 1.23% higher than yesterday and 15.66% lower from last week. The rise in net-long interest has fueled the flip in retail sentiment as 42.81% of traders were net-long AUD/USD during the final days of October, while the decline in net-short position comes as the exchange rate gives back the advance from the start of the week.

With that said, fresh data prints coming out of the Australia may curb the recent decline in AUD/USD as job growth is expected to recover, but the exchange rate may continue to give back the advance from the October low (0.7192) if it snaps the opening range for November.

AUD/USD Rate Daily Chart

Source: Trading View

• Keep in mind, AUD/USD traded to fresh yearly lows in the second-half of 2021 as the Relative Strength Index (RSI) slipped below 30 for the first time since March 2020, but lack of momentum to test the August low (0.7106) sparked a near-term correction in the exchange rate, with the pair approaching the 200-Day SMA (0.7548) as it cleared the September high (0.7478).
• However, the failed attempt to trade above the moving average has pushed AUD/USD back below 0.7440 (23.6% expansion), but need a close below the 0.7370 (38.2% expansion) to 0.7380 (61.8% retracement) region to bring the 0.7290 (23.6% expansion) area on the radar.
• Next area of interest comes in around 0.7180 (61.8% retracement) to 0.7210 (78.6% retracement), which lines up with the October low (0.7192), with a break below the September low (0.7170) opening up the 0.7130 (61.8% retracement) to 0.7140 (23.6% expansion) region.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong