Australian Dollar Outlook: AUD/USD and AUD/JPY Catch a Bid Ahead of Jobs Report

The Australian dollar is attempting to stabilise ahead of today’s labour force report, with traders weighing resilient domestic data, hawkish RBA minutes and shifting risk sentiment. While AUD/USD remains vulnerable to further downside if the US dollar strengthens, both AUD/USD and AUD/JPY have caught a bid into the jobs report as markets continue to price a high probability of another RBA rate hike in June.

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Australian Dollar Rebounds Ahead of Australia Jobs Data

June Hike Remains Likely for the RBA

With RBA cash rate futures implying a 91% chance of a hike in June, it seems unlikely that today’s employment report will derail the central bank from delivering a fourth consecutive 25bp increase, taking the cash rate to 4.6%. However, it could help shape expectations around whether we’ll see another hike by December. The RBA’s own forecasts have the cash rate pencilled in at 4.7% by year-end, though a hot labour force report today could push December’s implied RBA cash rate above the current 4.68%.

Today’s Labour Force Report in Focus

Unemployment has been trending steadily higher since October 2022, though it remains historically low at 4.3% — only slightly above its 1-year average of 4.25%. The participation rate has edged lower from its record high but still sits at a healthy 66.8%. Full-time employment has increased by more than 50k in three of the past four months, while headline job growth has remained positive for four consecutive months, even if the trend has softened since November.

Source: ABS, LSEG.

 

RBA Minutes Retained a Hawkish Tone

The RBA minutes retained a hawkish tone overall, with Board members noting that inflation remained higher than expected and labour market conditions were still tight. Policymakers also warned that upside inflation risks persist, particularly if elevated energy prices begin feeding more broadly through the economy. While the minutes acknowledged uncertainty around the outlook for demand and inflation, there was little to suggest the RBA is preparing to pivot dovish anytime soon. If anything, the minutes reinforced the view that another rate hike remains firmly on the table should inflation or labour market data surprise to the upside.

So if there are any surprises in today’s employment figures, they likely need to come to the downside. And even then, they may only dent expectations of a second hike by December rather than erase expectations for another move as soon as June.

 

 

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

My downside target near the base of the rising wedge has already been reached, with risk-off trade seeing an intraday dip below 71c ahead of Wednesday’s bullish inside day. While the 10 and 20-day EMA are capping price as resistance, a hot set of jobs figures alongside sustained hopes that the Strait of Hormuz could be reopened may allow the Australian dollar to bounce from current levels over the near term.

However, I remain on guard for a move towards 70c. My hopes of a true resolution between the US and Iran remain low, and the US dollar still shows the potential to have another crack at 100 — even if it ultimately falls short. Besides, we have only seen one leg lower on AUD/USD so far. And given the stretched positioning in futures markets, with record-high long bets, a move closer to 70c is not out of the question before a more durable low is found and the pair eventually breaks to new highs.

Alt: AUD/USD daily chart showing Australian dollar pulling back from rising wedge resistance towards 0.7000 support as US dollar strength and risk-off sentiment weigh on price action. 

Source: LSEG

 

AUD/JPY Technical Analysis: Australian Dollar vs Japanese Yen

Clearly, my bias for another leg lower on AUD/JPY has hit a bump in the road over the near term. The 1-hour chart shows the risk-on vibe was too difficult to ignore, sending AUD/JPY back up towards the weekly pivot point. And it shows the potential to continue higher should jobs data remain firm and sentiment buoyant. That places a retest — and potential break — of 114 on the radar over the near term.

However, I remain cautious on the daily chart given the double top around 114.70 following an extended rally higher. I am therefore also on the lookout for signs of a swing high on the daily chart near 114.50 to signal a lower high and flag the potential for another leg lower. But for today, risks appear skewed to the upside.

Source: ICE, TradingView

 

 

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge