AUD/USD: downside to resume, but a pop to the 0.74 handle risks test of 0.7450
AUD/USD broke higher on Friday, fulled by risk-on mode markets following China's intervention and then by poor US data. on the back of the nonfarm payrolls report as well as the services data in the US July ISM Non-Mfg PMI, arriving at 55.7 vs the 58.6 forecast and well below the 59.1 previous, investors stepped away from the dollar on a deteriorating outlook for the US economy's Q3.
A case for a strong dollar - "From an FX perspective, the jobs report should have minimal impact," - (analysts at TD Securities argue):
Payrolls aldo disappointed in July with a 157k gain on a deceleration in private services and a contraction in government jobs. However, the gain is still well above the breakeven pace (80-120k) and comes on the back of strong net upward revisions totalling +59k. "Manufacturing and construction held on to solid gains as well. This leaves job growth tracking at a robust pace with 3- to 6-month averages holding above 220k," analysts at TD -Securities explained.
"Even with today's modestly disappointing headline print, the pace of job growth remains more than enough to continue to reduce the unemployment rate and tighten labor markets, in line with the Fed's current projections. While wage growth has not jumped higher despite risks cited in the Beige Book and elsewhere, Fed officials remain confident that inflation should gradually return to, if not somewhat overshoot, its long-run 2% target. As a result, the Fed should remain comfortable with its current plans to hike gradually over time. We expect the next hike in September, followed by December," the analysts at TD Securities argued, and adding, - "We suspect that an outright capitulation on USD longs will remain absent for now."
AUD/USD, broadly speaking, remains under pressure in the range and the descending hourly channel from the 25th July peaks and recent 0.7350 lows. There is little of a bullish case until he 50-D SMAis penetrated, and that resides up at 0.7445. On a break there, bulls can go for the high at 0.7484 which is critical as it guards the downtrend at 0.7511. However, the downside is compelling for a test of 0.7315/10 and a break the 0.72 handle exposing the 2001- 2018 uptrend line at 0.7176.