Upon analyzing recent unemployment data, it is evident that the spike in unemployment in July was not solely due to Hurricane Beryl. The Chief Global Economist at Arch Capital, Parker Ross, highlighted that there is no common theme across the key drivers of unemployment in various states, industries, or reasons. The fact that temporary layoffs were the primary reason for the increase in unemployment suggests that there may be a potential for recovery in next week’s August jobs report.
Looking beyond the US labor market, investors should pay close attention to service sector data, as it significantly impacts GDP. Economists are predicting a slight decrease in the ISM Services Purchasing Managers’ Index (PMI) from 51.4 in July to 51.1 in August. A larger decline in the PMI could send recession signals and potentially lead to a 50-basis point rate cut by the Fed in September. This dovish monetary policy could drive demand for the AUD/USD pair among buyers, particularly if the numbers fall below expectations.
S&P Global Market Intelligence’s Chief Business Economist, Chris Williamson, emphasized the importance of Markit survey-based figures, indicating solid growth in August which could lead to robust GDP growth in the third quarter. However, challenges in the service sector such as hiring difficulties and elevated input cost inflation pose potential risks to economic stability. As inflation gradually normalizes, economic imbalances could hinder growth in the near future.
The trends in AUD/USD will largely depend on upcoming trade data from Australia and statements made by RBA Governor Michele Bullock. Positive trade data coupled with hints of an RBA rate hike could push the AUD/USD pair towards $0.68. It is imperative for investors to closely monitor the US economic calendar, as weaker-than-expected data could drive demand for the AUD/USD pair. However, concerns about a hard landing in the US economy may limit the potential gains.
From a technical standpoint, the AUD/USD pair is currently above both the 50-day and 200-day Exponential Moving Averages (EMAs), signaling bullish momentum. A breakout above $0.67500 could lead to a challenge of the $0.67967 resistance level, with further gains towards $0.68500 possible. On the other hand, a drop below the $0.67003 support level could indicate a downward trend towards the 50-day EMA. With the Daily Relative Strength Index (RSI) at 51.55, there is potential for the Aussie dollar to reach $0.68500 before entering overbought territory.
While there are some positive signs in the labor market and economic indicators, caution is warranted due to potential risks such as hiring challenges and inflationary pressures. Investors should stay informed about real-time data, news updates, and expert commentary to make informed trading decisions in the forex markets. By keeping a close eye on economic developments and central bank policies, traders can better manage their exposure and adapt their strategies accordingly.