AUD/USD spikes above 0.6850

• AUD/USD rose after weak US ISM services data, which contracted to its lowest level since 2020.
• The US economy added more jobs than estimated, while wage growth softened, helping the Federal Reserve work to control inflation.
• Fed policymakers reiterated the need to curb inflation, stressing that they will stay the course.

The Australian dollar (AUD) rallied against the US dollar (USD) following the release of crucial economic data in the United States (US) which, while upbeat, failed to support the USD. Additionally, a services PMI survey slipped into contractionary territory, fueling speculation of a US recession. At the time of writing, the AUD/USD pair was trading at 0.6866, some 40 points above the 200 day EMA.

Mixed US economic data supported AUD/USD

The US labor market data for December showed a mixed balance. Although 223,000 jobs were added to the economy, beating estimates of 200,000, fears that wage inflation would persist faded. Median hourly earnings rose 0.3% m/m, but on a year-over-year basis fell to 4.6%, versus the consensus of 5.0%. This slowdown would be welcomed by Fed officials, who see wage pressures as one of the factors keeping inflation above its 2% target.

The AUD/USD pair rose after the release and approached 0.6800. However, weaker-than-expected ISM services data and contraction in US factory orders gave AUD/USD another boost, which extended gains to a two-day high of 0.6849.

The ISM Services PMI unexpectedly contracted to 49.6 versus 55 estimates, and its lowest reading since May 2020, and lagged behind November’s 56.5 jumps, data released on Friday showed. PMI readings below the 50 line signal contraction.

Aside from this, Fed spokesmen continued to cross the news wires. Earlier, Atlanta Fed President Raphael Bostic said the December jobs report does not change his outlook on the economy, stressing the need to “stay the course.” Later, Federal Reserve Governor Lisa D. Cooks stated that inflation is “too high” and “very concerning” despite the latest reports.

In Australia, next week’s data will include Building Permits, the monthly CPI release, Retail Sales and Trade Balance. In the United States, the Consumer Price Index (CPI), the applications for unemployment benefits and the Consumer Sentiment of the University of Michigan (UoM) will be published.

AUD/USD Key Technical Levels