Employment data out of Australia will be watched on Thursday at 00:30 GMT as the Australian dollar struggles to regain positive momentum following the poor GDP readings for the third quarter.  The aussie has been on the backfoot following the disappointing growth figures released earlier in December and its slide has only been halted due to the US dollar losing some of its shine.

After a patchy start to the year, employment growth picked up some steam in the summer. The tightening labour market has led to the unemployment rate falling to a 6-year low of 5.0% in September and October. The solid jobs growth is expected to have continued in November, with analysts anticipating an addition of 20k jobs, while the jobless rate is forecast to hold at 5.0%.

But with wage growth still subdued – it stood at 2.3% in the third quarter – and headline inflation hovering around 2%, there is little pressure on the Reserve Bank of Australia to raise interest rates anytime soon. Up until just a few months ago, most analysts were expecting the RBA to begin hiking rates in late 2019. However, following the worsening outlook for the world economy in 2019 and a softer-than-projected GDP growth during the September quarter, both economists’ and markets’ expectations of an RBA rate rise have been pushed back into 2020. In fact, interest rate futures are pricing a small probability of a cut in the RBA’s cash rate in 2019.

Any further weakness therefore in incoming economic data would likely pressure the AUD/USD, threatening fresh lows below October’s 32-month trough of $0.7018. Worse-than-expected employment numbers could see the AUD/USD slip below nearby support around $0.7160 – the 61.8% Fibonacci retracement of the up-leg from $0.7018 to $0.7393. A drop below this area would bring the $0.71 handle into range, which is just above the 78.6% Fibonacci. Failure to hold above this level would open the prospect of a breach of the October low.

However, one possible risk for the AUD/USD bears is the possible end to the widening yield differential between the US and Australian government bonds. The widening yield spread, along with global trade tensions, has been one of the main drivers of the aussie’s 8% year-to-date slide versus the greenback. But with the Fed now pondering whether to go into slower gear with its rate hike cycle, and with optimism of a US-China trade deal rising, the Australian currency could enjoy a bigger boost from positive data surprises.

Better-than-anticipated employment figures could lift the AUD/USD above immediate resistance at the 50-period moving average in the 4-hour chart, just below the $0.72 level. The 50% Fibonacci lies slightly above this point and clearing these hurdles would open the way for the 38.2% Fibonacci at $0.7250. Even stronger gains could see the next major resistance coming from the 23.6% Fibonacci just above the $0.73 handle.


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This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Source: XM

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