FX.co ★ AUD/USD. "Australian Nonfarm Payrolls" helped the aussie, but be cautious with longs

The AUD/USD pair surged on Thursday, reacting to "Australian Nonfarm Payrolls." The report showed good results, indicating that the Australian labor market is improving. This report is important on its own, and given the current circumstances, its significance cannot be underestimated. Lately, the discussion regarding the Reserve Bank of Australia's possible course of actions in August has intensified significantly. The minutes of the central bank's last meeting, published on Wednesday, suggested that the central bank might raise interest rates again after the pause in June. Therefore, the latest report should be viewed in light of the possible outcomes of the RBA's August meeting. Notably, the rise in the AUD/USD pair is occurring amidst a corrective growth in the US dollar index. This indicates that the aussie is capable of driving its gains, benefiting from the strengthening hawkish expectations regarding the RBA's future actions.

In dry numbers:

The Australian Nonfarm Payrolls surprised traders with its strong figures. All components of the report came out in the "green," far exceeding expectations. For example, Australia's unemployment rate remained at 3.5% against a forecast of an increase to 3.6%. Take note that employment also grew in June. The gauge turned out to be much better than predicted, increasing by 32,000 (compared to forecast of only 12,000). Moreover, the structure of this indicator indicates that the overall growth was primarily driven by full-time employment, while part-time employment demonstrated negative dynamics (39/-6.7,000 ratio). Full-time positions often offer higher wages and greater social security compared to temporary jobs. Therefore, the current trend appears positive.

This result allowed experts from some major banks to once again discuss the possibility of a 25-basis-point increase in the RBA's interest rate at the August meeting.

Consequences of the data:

According to the minutes of the RBA's June meeting, the Council members agreed that "some further tightening" of the monetary policy may be required in the near future, which will be considered at the August meeting. Furthermore, the central bank expressed concerns about inflation, despite the recent positive indicators of CPI. The central bank noted that while internal inflation has decreased, inflation in the services sector remains high, "as well as rents, energy, and food prices." The central bank also highlighted the rise in a pro-inflationary indicator - wages increased to 4% in the annual terms in the third quarter.

This fundamental disposition increases the importance of another report, which will be published next week. We are talking about the release of data on the Consumer Price Index (CPI) growth in Australia. We will find out more about the dynamics of CPI for June and the second quarter of this year. If this report also shows a "green color," the probability of implementing the 25-basis-point scenario at the August meeting will significantly increase. In fact, the inflation growth will determine the outcomes of the next RBA meeting.

Conclusions

The situation regarding the AUD/USD pair is ambiguous. Traders are facing two significant challenges ahead - next Wednesday (July 26), the Federal Reserve will announce the outcomes of its July meeting, and on the same day (during the Asian trading session), Australia will publish its inflation report. If these fundamental factors resonate, the pair may not only return to the 0.69 level but also test the resistance level at 0.6950 (upper band of the Kumo cloud on the daily chart). This scenario is possible if the Fed takes a cautious position on further tightening of monetary policy, and the pace of inflation growth in Australia accelerates. However, if the Fed maintains a hawkish stance and the Australian CPI shows negative data, the pair may return to the 0.66-0.67 range.

Therefore, the current uptrend should be approached with caution, especially when the price reaches the 0.6850 mark (upper Bollinger Bands line on the four-hour chart). The Australian Nonfarm Payrolls data helped the aussie regain some of its lost positions, but in order to turn the situation in favor of the AUD/USD bulls, a more significant informational catalyst is needed.

From a technical perspective, on the daily chart, the pair is in between the middle and upper lines of the Bollinger Bands indicator, and above all the lines of the Ichimoku indicator, which has formed a bullish "Parade of Lines" signal on the 1D chart. This indicates looking at long positions on downward pullbacks. The next target for the upward movement is the aforementioned 0.6850 level.