Downbeat Employment and Consumer Confidence in the US Provide Boost to AUDUSD

NZDUSD slid After a downtrend of over 3 months, a reversal is in play for the AUDUSD pair following the recent weakness in the greenback. Major currencies across the board also benefitted in the past week as the US Dollar Index (DXY) tumbled from its highest point since early November 2020. Downbeat employment data and consumer sentiments were among the key factors causing the safe haven currency to lose its strength.

Downbeat Employment

The ADP Nonfarm Employment Change released in a report by the ADP Research Institute revealed that private payrolls in the US only increased by 374,000 in August, falling short of the market expectation of 406,000. It is worth noting that in the past year, the ADP employment change data had underperformed market consensus 8 out of 12 times.  In addition to that, US Nonfarm Payrolls released on Friday printed a disappointing figure of 235,000, missing the market expectation of 750,000 by a wide margin.  Aside from inflation data, employment is another major consideration for the Fed’s decision to tighten or maintain the loose monetary policy. The downbeat Nonfarm Payroll data leads the market to suspect a taper would happen much later, rather than sooner, thus pushing the greenback lower.

Consumer confidence weighed by Delta variant

The US economy is seeing an adverse effect of soaring Delta variant cases as consumer confidence in August dropped to a six-month low. The Consumer Confidence Index released by the Conference Board printed 113.8, a disappointing figure compared to a forecast of 128.5 and 125.1 from the month prior. The survey showed that consumers are less likely to buy a home and big-ticket items like motor vehicles and major household appliances over the next 6 months, hinting that consumer spending will cool in the third quarter.

Lynn Franco from the Conference Board mentioned: “Concerns about the Delta variant — and, to a lesser degree, rising gas and food prices — resulted in a less favorable view of current economic conditions and short-term growth prospects”.

COVID woes muted growth in AUD despite upbeat data

Australian Trade Balance for July surpassed previous readings of market consensus of $9.542B and $11.114B with an upbeat $12.117B. Data for Imports and Exports also improved in July as compared to June.  Despite the better-than-expected figures in the past week, the AUDUSD declines on Monday amid the escalating COVID-19 situation in Australia. Over the weekend on Saturday, Australia reported a record high of 1,756 infections.

Technical Analysis

NZDUSD has broken down from a descending triangle formation. Relative Strength Index (RSI) paints a bearish picture AUDUSD had been rejected at its dynamic resistance line, thus forming a falling wedge. RSI is maintaining above 50 after breaching the neutrality zone for the first time since 10 June. The bearish momentum has waned as the MACD had inched above the zero line.  MACD venturing into the positive region may signal that more upside is to follow.

At the time of analysis, the pair is above its 50-day simple moving average line and testing R1 which is a dynamic resistance line. If AUDUSD manages to break above R1, we project a price target at R2, 0.75545 which is the 50% Fibonacci level.  Conversely, if the price back tests the 50 SMA and is unsuccessful in maintaining above it, 0.7317(S1) will serve as a support.

Key events to watch in the coming week:

Monday, Sept 6

AUD – TD Securities Inflation (YoY), (MoM) (Aug)

Tuesday, Sept 7

AUD – RBA Interest Rate Decision, RBA Rate Statement

Thursday, Sept 8

USD – Fed’s Beige Book, Initial Jobless Claims (Sept 3)

Friday, Sept 9

USD – Producer Price Index ex Food & Energy (YoY) (Aug), Consumer Price Index (MoM) (Aug), Consumer Price Index ex Food & Energy (MoM), (YoY)(Aug)