Overall Outlook
The AUD/USD pair rose for three straight days, erasing Monday’s losses fueled by geopolitical anxieties, hitting 0.6300 Thursday. Bearish flag formed, point to more downside for the pair
Bearish Scenario
Sell AUD/USD, take-profit at 0.6200, stop-loss at 0.6350. Timeline: 1-2 days.
Bullish Scenario
Buy-stop at 0.6300, take-profit at 0.6400, stop-loss at 0.6200.
Upcoming Nonfarm Payroll Impact
The AUD/USD bounced after strong ADP job numbers. The economy added 183k jobs in January, surpassing expectations. Focus now shifts to nonfarm payrolls, with economists anticipating a steady unemployment rate above 4% and over 180k jobs added.
The Federal Reserve’s Perspective on the Labor Market and Inflationary Pressures
The Federal Reserve, tasked with maintaining maximum employment and price stability (its dual mandate), closely scrutinizes jobs data for insights into the overall health of the economy. While a robust labor market is generally a positive sign, its current strength presents a complex situation for the Fed. This strength, characterized by low unemployment and persistent wage growth, may actually limit the impact of any further policy tightening on the US dollar’s value.
The Fed’s primary concern at present remains the persistent inflation rate, which has proven stubbornly resistant to returning to the targeted 2% level. Despite previous interest rate hikes and other contractionary monetary policies, inflation continues to hover at levels deemed unacceptable. Recent economic data highlights this challenge. For example, the headline Consumer Price Index (CPI) unexpectedly rose to 2.9% in December, indicating a reacceleration of price increases. More critically, core inflation, which excludes volatile food and energy prices to provide a clearer picture of underlying inflationary pressures, remains elevated, staying consistently above 3%. This persistent core inflation suggests that the Fed’s efforts to curb price increases have not yet fully taken hold, potentially necessitating further policy adjustments. The central bank’s next moves will likely be heavily influenced by incoming economic data and a careful assessment of the trade-offs between maintaining a strong labor market and achieving its inflation target.
Interest Rate Stance
Steady inflation justifies the Fed’s likely pause on rate cuts, as cuts could fuel inflation. The Aussie also gained amid US-China trade concerns.
Technical Analysis: Bearish Flag
AUD/USD stabilized, hopeful for a US-China trade deal, rebounding from 0.6085 to 0.6285. The pair remains below the 50-day moving average and 0.6350, August’s low. A bearish flag pattern has formed, suggesting a possible downturn. The AUD/USD may fall towards 0.6200.
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