- AUD / USD has seen a slight rebound from a weak US labor market report, but is still trading in the red around 0.7430.
- Australia’s soft retail sales number and current concerns about Australia-China relations could be weighing on.
AUD / USD has risen from lows around 0.7410 to 0.7430 in recent trading following a worse than expected US labor market report for November. Currently, the pair is trading flat on the day.
AUD benefits as soft US data leads to lower risk of reaction
Bad data is good data again, apparently. The November report on the US labor market was softer than expected, with the US economy adding only 245,000 jobs (469,000 gains were expected) and although the unemployment rate fell 0.2% to 6.9 %, this was driven by a 0.2% drop in the participation rate to just 61.5%, still almost 2% below pre-pandemic levels.
The US equity markets appear to have taken this as good news (the S&P 500 and the Dow hit all-time highs), as soft data 1) is likely to put pressure on the US Congress. to provide fresh encouragement before the Biden administration takes office. in January and 2) pressured the Fed to deliver more stimulus later in the month by adjusting the orientation, composition, or even size of its QE program. In fact, US equities have advanced to new all-time highs.
However, the USD reaction has been more nuanced. The dollar index is still marginally trading in the red on the day, but losses were capped back above 90.50 and DXY is now trading flat compared to when the data came out.
AUD gains after the data have now mostly been returned. Gains against the USD are being cornered by the CAD, which is a boost from its own November labor market report that beat expectations by some margin, and the GBP, which is higher amid hopes for a Brexit deal. by the end of the week.
On the day, AUD / USD is still marginally in the red; Final Australian retail sales figures for October, released during Friday’s Asia session, were disappointing and could be weighing on the Australian. Retail sales increased at a slightly softer-than-expected rate of 1.4% MoM, lower than the preliminary estimate for October retail sales of 1.6%.
However, more broadly, the biggest concern on the minds of AUD bulls at the moment has been the deterioration in diplomatic and trade relations between Australia and its most important trading partner, China, over the past few weeks. Any sign of normalization of the ties is likely to be greeted with jubilation by the AUD traders.
AUD / USD finds resistance at previous yearly high
AUD / USD has survived a retest of the previous annual high (set in early September) at 0.7114. The level appears to have offered strong support, with the bulls willing to buy the decline. As long as the USD continues to weaken and risk appetite remains bullish, Thursday’s highs to date at 0.7450 appear to be taken. Beyond these highs, the next key resistance area is the psychological level of 0.7500, which coincides with the low of December 2017. Conversely, if the bears regain control and push the pair below the September high and the 0.7400 level, a move back towards a key resistance area around 0.7340 is likely.
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