The Aussie Tanks on Weak Employment Report

Unemployment rose back to 5.3% (after a 1-month hiatus at 5.2%)
Headline employment contracted by -19k (+15k expected) – its first contraction since September 2016
Full-time employment fell -10.3k (+26.2k prior)
Participation rate at a 4-month low of 66% (record high of 66.2% reached in August)

Another day, another bout of volatility in Asia sparked by incoming data and expectations diverging. Whilst unemployment was forecast at 5.3% - it’s a step in the wrong direction where RBA policy is concerned. Yet to see employment for the first time in over 3 years, full-time employment contract and the participation rate fall further from its record highs took its toll on the Aussie which has broken key levels across the board.

As it stands, RBA expect unemployment to sit around 5.25% through to 2021 before it falls to 5%. Yet if the inverted correlation with capacity utilisation is to hold true we could still see unemployment fall over the coming months. As always, the correlation is imperfect, but the basic trend is apparent; a rising capacity utilisation (falling on the chart) leads to lower unemployment, and visa-versa.

Still, after today’s data set, expectations for a rate cut are on the rise again, with April to May next year suggesting around a 60% chance. A cut in December is just 25%. We’ll have to wait until December 19^th to see if this month’s data set is merely a blip, but for now the Aussie remains under pressure and could face further headwinds if trade talk optimism continues to fade.

AUD/USD: The bearish channel and 200-day eMA capped as resistance ahead of its recent pullback, although today’s weak employment data saw prices break the corrective channel and now testing support just above 0.8600. Given its established downtrend and momentum has now realigned with it, the bias is for it to push to new lows.

Bearing in mind that prices are now resting on support having reached 95% of its ATR, then it plausible to expect a pause or mild rebound from current levels at the very least.
Daily trend remains bearish beneath the 0.6930 highs, although bears can fade into minor rallies beneath 0.6850 (momentum doesn’t favour a rebound that high though).
A clear break of 0.6800 brings 0.6750 and 0.6723 low into focus.

AUD/NZD: Given RBNZ may well keep rates at 1% over the foreseeable future (and above RBA’s 0.75%) then AUD/NZD could extend its downside. Today’s weak employment print and rising expectations for RBA to cut only adds to the diverging theme whilst prices remain elevated.

A cluster of support around 1.0620 continues to hold (200-day eMA, 38.2% Fibonacci retracement and structural levels) so we could see a minor rebound before losses resume.
A break below 1.0600/20 signals bearish resumption and brings the 1.0450 / 1.5000 zone into focus.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.