AU employment reignites AUDUSD downside

A remarkable session for markets overnight as one of the most established relationships in trading appeared to completely sever ties with its past. The ability of gold and USDJPY to rally in tandem is an occurrence which until recent times has rarely been seen and is yet another example of how the world of low/negative interest rate world, is altering investment decisions.

On the subject of low-interest rates, today's Australian Labour force report for January, coming after another round of stagnant wages data earlier this week is set to test the resolve of the RBAs optimism that has been on show in recent months.

This optimism has been in large part due to the better run of employment data during the last two months of 2019 which saw the unemployment rate fall from 5.3% to 5.1%. Today's release reverses that fall in one neat brushstroke as the unemployment rate returned to 5.3% and the underemployment rate rose from 8.3% to 8.6%.

The bright spots were a +46k rise in full-time workers after three months of subpar gains in this category and the participation rate ticked higher to 66.1%, just below the record high of 66.2% achieved midway through 2019.

Today's report has, in a nutshell, lowered the bar to another RBA interest rate cut which may come as soon as April should the February Labour force report due to be released on March the 19^th disappoints in a similar fashion.

The impact of this has resulted in the AUDUSD breaking below key support .6670/60 area, after gallantly fighting for two weeks against the tidal wave of U.S. dollar buying seen in other currency pairs. The latest leg lower is viewed as a minor Wave v from the .7032 high of late December.

The commonly used projection for a Wave v is based on the length of Wave i (the decline from .7032 to .6849) and this implies the current leg lower can extend towards .6570ish, however in the current environment where the U.S. dollar reigns supreme some downside overshoot cannot be ruled out.

Source Tradingview. The figures stated areas of the 20th of February 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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