On Thursday, the AUD/USD pair surged and tested the 0.66 level. After a drawn out decline, the pair has been rising for the second consecutive day. The price increase is mainly due to the greenback's weakness, which reacted negatively to the outcomes of the March FOMC meeting. However, the Australian dollar also made its contribution, as it received significant support amid unexpectedly strong labor market data from Australia. Almost all components of the report came out in the green, easing concerns about the Reserve Bank of Australia considering a future interest rate cut.
I'd like to remind you that following the RBA's March meeting, the central bank excluded an important (one might say key) phrase from the accompanying statement – regarding possible tightening of monetary policy. Back in February, the phrase ("further tightening in monetary policy may be required") was present, but in March, the Bank decided to remove it from the final communique. Thus, the RBA unequivocally indicated that the next step in adjusting the interest rate would be a decrease. The question remains as to when exactly the central bank will decide to take the first step in this direction.
Michelle Bullock, in the final press conference, hinted that the central bank would not consider easing monetary policy until inflation shows a confident decline and the labor market stops overheating. And while inflation indicators in Australia are somewhat decreasing, the labor market, judging by the latest release, shows no signs of cooling down.
It's worth noting that last month, the "Australian Nonfarm Payrolls" data disappointed AUD/USD buyers. Australia's unemployment rate reached a 2-year high, and has risen to 4.1% (the highest level since January 2022). Employment rose by just 500 persons over the month, below a forecast of 26,000. Many experts speculated that the labor market had stopped overheating, and this fact (along with the slowdown in inflation) brings the date of the RBA's first rate cut closer.
Thursday's report contradicted all these assumptions. This turned out to be surprisingly strong and, so to speak, "promising."
For instance, Australia's jobless rate dived to 3.7% in February (against an expected increase to 4.2%) – the lowest level since September 2023.
It is also necessary to take note of the positive dynamics of the increase in the number of employed. Quite strong dynamics, in fact. The indicator turned out to be much better than forecasts, reaching 116,500 (against an expected increase of only 39,000). Moreover, the structure of this indicator suggests that the overall growth was primarily driven by full-time employment, while the part-time employment component demonstrated relatively weak growth (the ratio being 78,200/38,300). It is known that full-time positions typically offer higher wages and a higher level of social security compared to temporary jobs. Therefore, the current trend in this regard is exclusively positive. The share of the economically active population also increased – up to 66.7%.
What does the report indicate? First and foremost, it is necessary to note that the February figures will not bring back the phrase suggesting that the RBA may further tighten monetary policy. Hypothetically, such a scenario cannot be ruled out (in the future), but only if, in addition to the labor market overheating, inflation starts to accelerate. At the moment, there are no prerequisites for this.
Nevertheless, the latest report will not go unnoticed. Not at all. Most likely, it will weaken the market's dovish expectations and "push back" the likely date of the first interest rate cut. Recall that after the release of January data, the majority of experts surveyed by Bloomberg said that the Australian central bank would likely begin easing monetary policy, possibly in the third quarter of this year, i.e., in August or September. Following the previous survey, most respondents pointed to the fourth quarter as the most likely target. It can be assumed that now the market will again push back the presumed "D-day" to the fourth quarter (i.e., November or December).
"In the moment," buyers of AUD/USD received significant support on Thursday; however, in the future, the aussie will only be guided by the behavior of the US dollar. The fact is that in the context of the near-term outlook, the latest report did not change anything: the market was confident even before the February data that the RBA would keep rates at their current level in the coming months. "Shifting" the likely rate cut date from the third to the fourth quarter is certainly a hawkish signal, but it is not capable of pushing the aussie higher for an extended period.
In other words, the market will quickly digest the latest report and switch focus to the behavior of the US dollar index.
Therefore, you should be cautious with long positions on the AUD/USD pair. On the daily chart, the price is within the Kumo cloud, between the Tenkan-sen and Kijun-sen lines, and on the 4-hour chart, the price failed to stay above the resistance level of 0.6620. Therefore, buying should be considered only after buyers settle above this target. In that case, the next target for the bullish movement will be the 0.6680 level – the upper boundary of the Kumo cloud on both the daily and weekly charts simultaneously.
The material has been provided by InstaForex Company - www.instaforex.com #
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