The AUD/USD steadies around 0.6660 after a recent three-week rally halted due to weak Australian employment figures. While the Australian Dollar reached a three-month high of 0.6686, the focus now shifts to US Nonfarm Payrolls data for indications on the Federal Reserve’s monetary policy direction.
Recent data revealed a workforce reduction in Australia, with a loss of 21.3K jobs in November against an expected 20K increase. Meanwhile, the US Dollar Index trades near its seven-week low of 98.13, as the Fed’s past three meetings resulted in a 100 basis point rate cut, currently between 3.50%-3.75%.
Technical Aspects Of AUD/USD
In technical aspects, AUD/USD holds steady near a supportive 20-Exponential Moving Average, indicating a bullish trend supported by a 14-day Relative Strength Index of 67. While momentum is strong, potential overbought signals might result in consolidation, with resistance observed at 0.6707 and support around 0.6551.
The US Dollar, the most exchanged currency globally, accounts for over 88% of forex trades. The Fed’s monetary policy heavily influences its value, with interest rate adjustments affecting its standing. Quantitative easing and tightening also impact the US Dollar, with the former often leading to diminished value and the latter having a supportive effect.
We are seeing the AUD/USD pair stall around the 0.6660 level after a strong three-week run. The rally lost steam following last week’s disappointing Australian employment report, which showed an unexpected drop in jobs. This puts all eyes on the upcoming United States Nonfarm Payrolls (NFP) data for direction.
The Federal Reserve has already been cutting interest rates this year, lowering them by a full percentage point over the last three meetings to combat a softening labor market. With the latest Consumer Price Index report from the Bureau of Labor Statistics showing core inflation has cooled to 2.8% year-over-year, the Fed’s focus is squarely on employment. The market is now anticipating Tuesday’s NFP data to see if the job market weakness is continuing.
Market Reactions And Strategies
For derivative traders, this setup suggests a market coiling for a move. If the upcoming US jobs number is weaker than expected, it will reinforce the Fed’s rate-cutting path, likely weakening the US dollar and sending AUD/USD higher toward the 0.6707 resistance level. In this scenario, buying call options could be an effective way to capitalize on the potential upward momentum.
Conversely, a surprisingly strong NFP report could cause the market to reconsider the pace of future Fed rate cuts, which would strengthen the dollar. This outcome would likely push AUD/USD down, breaking below its current support levels. Traders anticipating this could consider buying put options to profit from a potential decline toward the 0.6550 area.
Given the uncertainty, implied volatility in the currency markets has been compressing ahead of the data release. The CME’s AUD/USD Volatility Index (AUDVOL) has recently fallen to a multi-week low of 8.5, making options strategies that profit from a sharp price move, like straddles, relatively cheaper. This presents an opportunity to trade the breakout in either direction that the NFP data is likely to cause.
The key technical level to watch is the 20-day moving average, currently sitting around 0.6588. A decisive break below this level following the US jobs report would confirm a shift in momentum to the downside. As long as we hold above it, the broader trend remains upward, favoring bullish strategies.
