The AUD/USD exchange rate has entered a strong recovery phase, building momentum as market participants turn their focus toward the upcoming US inflation and employment data. After touching a recent high of 0.6600, the currency pair has gained sharply from last month’s low of 0.6413, showing increased bullish sentiment across global markets.
The decisive factor now lies at the critical resistance level of 0.6623, which could unlock a deeper rally toward 0.6700 if broken. In this piece, Logirium brokers carefully unpack the complexities of the topic.
US Jobs and Inflation Data: The Core Drivers
The latest rally in AUD/USD was fueled by disappointing US non-farm payrolls (NFP) figures released last Friday. The report revealed that the US economy added just 22,000 jobs in August, significantly below the market consensus of 75,000. This miss signaled a softer labor market, sparking speculation that the Federal Reserve may be forced to act sooner on interest rate cuts.
Adding to this uncertainty is the upcoming annual revision of job creation data by the Bureau of Labor Statistics (BLS). Analysts project that the revision will show the US economy created 800,000 fewer jobs in the year to March, with some forecasting the shortfall could approach 1 million jobs.
Such a revision would underscore the view that the labor market is weaker than previously thought, amplifying expectations of a monetary policy shift.
The biggest macroeconomic risk emerging from this setup is stagflation, a combination of slowing growth and persistent inflation. If confirmed, stagflation would create a challenging environment for the Fed, as cutting rates may provide short-term relief for growth but also risk reigniting inflationary pressures.
Fed Policy Outlook: A Delicate Balance
The Federal Reserve’s dual mandate, price stability and maximum employment, faces one of its toughest tests in recent years. On one side, weak job growth and downward revisions suggest the labor market is losing steam.
On the other hand, inflationary pressures remain above the Fed’s 2% target, with both CPI and PPI still elevated.
If the Fed delivers a rate cut next week, it may provide short-term support for equities, commodities, and risk-sensitive currencies such as the Australian dollar. However, the longer-term risk is that aggressive easing could exacerbate inflationary dynamics, especially if supply-side pressures remain unresolved.
For the AUD/USD pair, this policy crossroads is crucial. A dovish Fed, signaling lower rates, tends to weaken the US dollar index (DXY), which in turn boosts commodity-linked currencies like the AUD. Conversely, any hawkish surprise from the Fed could dampen the rally and reintroduce downside risks.
AUD/USD Technical Analysis: Signs of Strong Bullish Momentum
From a technical analysis standpoint, the AUD/USD pair has shown a convincing rebound. The currency has surged from the 0.6413 low to 0.6600, breaking above the key resistance level at 0.6565. This zone previously served as the neckline of a double-bottom pattern, a formation often seen as a bullish reversal signal.
Key indicators support the bullish momentum:
- 50-day Moving Average (MA): The pair is trading above this crucial trendline, reinforcing positive sentiment.
- Ichimoku Cloud: The price action has broken above the cloud, another bullish confirmation.
- Relative Strength Index (RSI): The RSI continues to rise, showing strong buying interest, though not yet in overbought territory.
- MACD (Moving Average Convergence Divergence): The MACD histogram and signal line are climbing, pointing to sustained momentum.
The next challenge lies at 0.6623, a critical resistance point representing the highest swing level of the year. A successful break and daily close above this level could trigger a surge toward 0.6700, followed by extended targets near 0.6750. On the downside, immediate support is located at 0.6565, with stronger support at 0.6500.
Broader Market Context
The Australian dollar often benefits during periods of risk-on sentiment, as it is strongly correlated with global commodity demand and emerging-market growth prospects. Rising optimism around potential Fed easing and a weaker US labor market has provided additional tailwinds.
Meanwhile, China’s economic recovery remains a secondary but important factor. Since Australia’s trade balance is heavily reliant on iron ore and coal exports to China, any improvement in Chinese demand further supports the AUD’s trajectory.
Conclusion: Bullish Outlook Hinges on 0.6623
The AUD/USD forex signal is currently tilted to the upside, supported by both technical indicators and a shifting macroeconomic backdrop. Traders should closely monitor the 0.6623 resistance level; a break above it could unlock a powerful bullish continuation toward 0.6700 and beyond.
For now, the AUD/USD exchange rate presents a constructive technical setup, and the path of least resistance points higher. If 0.6623 is decisively flipped, the pair could enter an extremely bullish phase in the weeks ahead.
