AUD/USD to benefit from commodities short covering, softer greenback

  • RBA in focus and markets look out for a less hawkish outcome.
  • AUD/USD is on the verge of a significant pullback to retest 0.7500.

The Aussie is firmer than it was a week ago, with bulls back at the helm and risk appetite in general supported by the “Goldilocks” view of last week’s US Nonfarm Payrolls.

Despite the strong headline number, the dollar failed to move higher even though 850,000 jobs last month had been created, easily beating expectations and after rising 583,000 in May. 

The Unemployment Rate rose to 5.9% from 5.8% in May, while the closely watched average hourly earnings, a gauge of wage inflation, rose 0.3% just last month; and there lies the catalyst for a softer US dollar.

The devil in the detail is what markets have traded, taking profits as investors are taking the view that the Fed is not going to be in a rush to adjust its policy any time soon. 

Markets will look ahead to the Federal Open Market Committee meetings on July 27-28 and September 21-22, along with the Jackson Hole Symposium August 26-28.

Between now and then, low volatility could well be back in forex for while longer as we approach the summer lull.  

The question is whether the greenback can continue on its northerly trajectory.

The progress in jobs gains will be welcomed by the Federal Reserve and likely to keep US money market rates biased towards a 2022 rate hike which should be supportive of the lower yielders, at least. 

For AUD, the focus will be on the Reserve Bank of Australia on Tuesday and whether the central bank will follow others and start signalling a rate hike in 2022.

If the markets will be forced to re-price some of their hawkish expectations, then that could also put pressure on AUD.  

AUD/USD technical analysis

Technically, from a 4-hour perspective, a pullback could be in order, targeting 0.75 the figure in a 38.2% Fibonacci retracement.