16.03.202314:27 Forex Analysis & Reviews: AUD/USD: Deceptive optimism of the Australian dollar

The Australian dollar is rushing into battle on Thursday against the U.S. currency. During the Asian session, the Aussie returned to the area of the 66th figure, reacting to the release of data in the Australian labor market. The published consumer price inflation expectations also supported AUD/USD buyers. The pair is showing corrective growth, but it should be treated with great caution, given the position of the RBA and the volatility of the U.S. dollar index.

Green Australian Jobs Report

The Australian jobs report really surprised traders with strong numbers. According to the data released today, all components came out in the "green zone," much better than expected. For example, Australia's unemployment rate fell to 3.5% in February after rising to 3.7% in January. Overall, the indicator is in the region of 50-year lows.

Also noteworthy is the positive dynamics of the rise in the employment figures in February. This component of the report also turned out to be better than expected, reaching around 64,000 (against the forecast growth of 49,000). In addition, the structure of this indicator suggests that the overall growth was due solely to the increase in the full-time employment component (74/-10,000 ratio). Full-time positions, as a rule, offer a higher level of wages and a higher level of social security compared to temporary part-time jobs. So the current trend in this regard is overwhelmingly positive.

In other words, the report published Thursday turned out to be strong in all respects: it reflected an increase in employment and a decrease in unemployment, and against the backdrop of an increase in the share of the working-age population (the indicator rose to 66.6%).

It is also worth noting that Australia released its consumer price inflation expectations on Thursday (not a bad indicator for assessing current household sentiment on inflation). The indicator came out in the green zone, providing additional support to the Aussie.

Market reaction

The Australian dollar strengthened its position throughout the market, and not only due to fairly strong macroeconomic reports. The AUD/USD pair is showing corrective growth amid increased risk appetite. In particular, against the backdrop of the collapse of the U.S. bank SVB and the fall of Credit Suisse shares, Australian Treasurer Jim Chalmers said that the country's banks are well capitalized, and Australian regulators are "in control of the situation." It also became known that the management of Credit Suisse decided to preventively strengthen liquidity due to the intention to exercise the option and borrow up to 50 billion francs from the Swiss National Bank. The general information picture was supplemented by the chairman of Saudi National Bank, who said that the panic around Credit Suisse was "unfounded," the bank, in his opinion, is unlikely to seek additional capital and, in general, it is "healthy."

This fundamental background allowed AUD/USD buyers to seize the initiative and test the Tenkan-sen resistance level (0.6670). However, the upward impulse faded in this price area: the pair failed to approach the borders of the 67th figure. Considering such a "rosy" fundamental background, this is quite a modest achievement for the AUD/USD bulls.

RBA – anchor for Aussie

Obviously, the Australian dollar remains under background pressure. This pressure is due to the decline in hawkish expectations regarding the further actions of the RBA. And although there are still three weeks before the next (April) meeting, the market is increasingly suggesting that the regulator will not increase the rate next month. Relevant hints were heard at the March meeting: the Reserve Bank softened the wording of the accompanying statement, simultaneously stating that inflation in Australia has reached its peak.

Adding fuel to the fire was the Australian Consumer Sentiment Index, which remained at an all-time low of 78.5 in March. From November till December, this index, calculated by Westpac bank and Melbourne Institute, was consistently increasing, but in January, it sharply fell down from 84 points to 78.5. On the same day (March 13), the weekly survey by ANZ was released, which showed a 2.9% drop in consumer confidence, the lowest level since April 2020.

It is worth recalling here that the Australian consumer price index also dropped quite sharply in January – to 7.4% (with a decline forecast to 8.1%). At the same time, according to the latest data, the volume of Australian GDP in Q4 2022 increased by only 0.5%, while the growth forecast was 0.8%.

All these fundamental circumstances tip the balance in favor of the RBA's wait-and-see position. Strong Australian jobs report cannot radically change the current situation: dovish sentiment will continue to dominate among traders, especially against the background of the "bank failure" in the United States and the problems of Credit Suisse.

Conclusions

The general fundamental background for the AUD/USD pair does not contribute to the development of the upward trend. The current price growth is of a corrective nature, so it is advisable to use it as a reason to enter sales. The first target for the downward move is 0.6570 (2023 price low). The main target is 0.6520 (the lower line of the Bollinger Bands indicator on the D1 timeframe).