Originally published by AxiTrader
There is nothing like a super strong employment report to move a currency and get forex traders lifting the offers.
And that is exactly what we saw in the Australian dollar yesterday with the much stronger than expected print for August employment showing a 54,200 jump in jobs during the month.
As a result, AUD/USD moved from 0.7973 to 0.8013 in the blink of an eye. It traded the high of the last 24 hours around 0.8015 soon after and then drifted in a 20 point range before coming in for some heavy selling in early New York trade took it down to a low around 0.7953.
It's back at 0.7998 as I write up around 20/25 points from where it was this time yesterday and benefitting from a weaker US dollar which gave back all of the ground it made when the CPI was released overnight after traders started fretting about North Korea again.
So what's next as we head to the weekend?
A couple of things, naturally.
First, if currency markets around the globe are reacting to signals from central banks that they will be removing emergency stimulus - as we saw last night with GBP/USD after the BoE meeting, minutes, and press conference - then how long can it be before traders really start focussing on higher RBA rates?
I say that because despite what RBA board member Ian Harper might say the August employment data, indeed data for the jobs market this year, was been strong.
As I wrote earlier in my Overnight Wrap, thee Australian economy generated 54,200 jobs in August on a seasonally adjusted basis. That brings the total jobs created this year to 268,300 at an average of 33,500 per month. That’s well above the 5 year average of 15,300. That’s an unequivocally strong performance of the labour market.
RBA governor Lowe suggested in September this strength is already causing wages to rise in pockets and that the “Reserve Bank's central scenario is that, over time, this will become a more general story”.
So the chances of a rate hike in 2018 have risen materially. Naturally, that assumes this strength in the employment market continues – as the NAB business survey suggests it might. And if governor Lowe and his colleagues are right about growth, wages, and by extension inflation, then with a solid global growth environment, the conversation will be changing in the months ahead toward the when of RBA rate hikes.
That will naturally support the AUD/USD in the medium term.
In the immediate term though, the past 24 hours have seen metals come under selling pressure once more while iron ore fell more than 2% on Dalian futures.
But that's mitigated by a slightly weaker US dollar so the Aussie dollar is sitting around 80 cents.
North Korea has launched another missile over Japan as I write this and although there has yet to be a response from the US financial markets are taking it in their stride. USD/JPY is back at 110 from a low of around 109.50 immediately after the news broke - but that's something to watch today.
So on balance while the Aussie is below the resistance I've been highlighting at 0.8050/60 it looks like lower levels still beckon to test the true level of support. Last night low at 0.7950 is first support but 0.7850 is the target.
Looking at the 4 hour charts support comes in at the 200-period moving average at 0.7942 and then this little uptrend at 0.7930. Resistance is at 0.8006, 0.8015/20 and then 0.8040.
Have a great day's trading.