AUD / USD stabilizes around 0.7270 but at risk of further losses

• AUD / USD is firmly on the defensive Thursday, amid a broad recovery in the USD on an apparent upswing in pandemic / lockdown concerns.
• The AUD underperforms within the G10 despite the October labor market data figures.
• The Australian state of South Australia entering a lockdown is likely weighing in, the pair awaiting a test of recent lows at 0.7220.

The AUD/USD it is trading firmly lower around 0.7270 and is the worst performing currency of the G10 on the day. The pair is trading lower at about 30 pips or 0.4%.

Aussie ignores blockbuster job data, likely due to Covid-19 concerns

The Australian labor market performed significantly better than expected in October, with the economy adding 178,800 jobs against expectations of a loss of 30,000. Promisingly, much of this increase was due to gains in full-time employment, which increased by 97,000. Furthermore, unemployment increased only very slightly to 7.0%, below the expected increase to 6.9%. The rise in the unemployment rate despite the economy adding almost 180,000 net jobs in October can be explained by a jump in the participation rate to 65.8% from 64.8%, the second largest jump on record (after 1.1% in July from 62.9% to 64.%). The Australian participation rate has practically returned to pre-Covid-19 levels.

Although Thursday’s economic data was better than almost anyone could have expected, the AUD is underperforming on Thursday. A sense of broad risk in the markets and the recovery of the US dollar has been a factor that has worked against the risk-sensitive AUD; The market’s focus appears to have returned to the growing short-term economic risks presented by the continued spread of Covid-19 in the U.S. (New York City announced school closings near the end of Wednesday’s session in US, causing the stock market to decline) and elsewhere.

Indeed, concerns about the spread of the virus in Japan are mounting, with Tokyo at record highs and now at its highest virus alert level. Additionally, and likely directly contributing to the AUD decline is the news that the Australian state of South Australia will immediately implement a six-day “circuit breaker” lockout after an outbreak was recently discovered, serving as a reminder of the risks that the pandemic still represents for the country.

AUD / USD lower, towards the bottom of the recent range

AUD / USD has failed to rally above 0.7280 in recent trading, and sellers got ahead of a retest of the previous weekly lows around 0.7284. The pair now appears to be adjusting to a resistance in the form of a downtrend linking the highs of the European morning sessions on Wednesday and Thursday (see the one-hour chart).

If the bears remain in control, a retest of Thursday’s lows at 0.7255 and then ultimately the 0.7250 level is on the card in the near future, as it is, eventually a test of the lower bounds of the line. AUD / USD recent trend, the bottom of which links the November 3 highs and November 13 lows at approximately 0.7220.

One hour chart