AUD/USD forecast: signal ahead of NFP data, RBA decision

The Australian dollar to USD (AUD/USD) exchange rate continued its sell-off on Thursday as focus shifted to Friday’s US non-farm payroll (NFP) data and Tuesday’s Reserve Bank of Australia (RBA) interest rate decision. It crashed to a low of 0.6520, its lowest swing since May 1st. 

US nonfarm payrolls data ahead

The biggest AUD/USD news of this week was Wednesday’s Federal Reserve interest rate decision. In it, as we wrote earlier, the bank decided to leave interest rates unchanged between 5.25% and 5.50%. Rates have remained in this range since last year. 

In its statement, the bank noted that the economy was doing well as it avoided a hard landing. Inflation is moving in the right direction, with the headline and core personal consumption expenditure (PCE) nearing the 2.0% target. 

The Fed’s biggest concern now is the other part of its dual-mandate: the labour market. In a statement, the bank warned that the job market was softening and that it would be comfortable cutting rates before inflation moves to 2.0%. 

These concerns escalated on Wednesday after the ADP published a weak private sector payrolls report. In it, the company said that the economy created 122,000 jobs in July, the lowest reading in months. 

Another report on Thursday showed that the number of jobless claims continued rising last week, its highest point since August last year. The labor section of the ISM non-manufacturing data dropped to 43.

The Fed has maintained that it will be data-dependent when determining when it will start cutting interest rates. One of the most important data to watch will come out on Friday when the BLS releases the official nonfarm payroll (NFP) data. 

Economists will watch three things in this report. First, as always, they will look at the headline jobs report. Economists expect this figure to show that the economy added over 170,000 jobs after adding over 204k jobs in June. In this regard, traders will watch out whether the bureau will downgrade its June report as it has been doing in the past few months. 

Second, and most importantly, they will watch out the unemployment rate, a figure that looks at the number of people of working age who are not working. The most recent data showed that the jobless rate rose to 4.1% in June after bottoming at 3.5% in 2023. Therefore, another sign that the rate is rising will raise hopes of a rate cut.

Finally, traders will watch out for the country’s wage growth. While wages are growing, there are signs that the trend is slowing. The consensus is that the average hourly earnings slowed from 3.9% to 3.7% in June. 

Reserve Bank of Australia (RBA) rate decision

The next important AUD/USD news will come out on Tuesday next week when the Reserve Bank of Australia (RBA) delivers its interest rate decision. This will be an important meeting because the bank has signaled that it may be comfortable hiking rates again.

Still, analysts believe that the RBA will maintain interest rates steady and hint that they would remain higher for longer. 

The most recent Australian inflation data showed that prices are coming downwards, albeit at a slow pace. The headline CPI remained steady at 1.0% in the fourth quarter and then rose to 3.8% on a YoY basis. 

At the same time, the closely-watched weighted mean CPI retreated from 4.4% in Q1 to 4.1% in Q2, lower than the median estimate of 4.3%. It moved from 1.1% to 0.8% on a QoQ basis. 

The trimmed mean CPI also continued falling, reaching 3.8% YoY and 0.8% QoQ in the last quarter. While these numbers are still higher than the RBA’s target of 2.0%, they are moving in the right direction. 

Additional data showed that Australia’s retail sales dropped by 0.3% in the last quarter. On Thursday data showed that the country’s exports rose by 1.7% in June while imports slowed to 0.5%.

All these numbers means that the RBA will likely be the last central banks to start cutting interest rates. The expectation is that it will start cutting them in December.  The Fed will likely start cutting in September while the ECB and BoE have already started. 

AUD/USD technical analysis

The Australian dollar has been in a strong downward trend in the past few weeks. It has tumbled from the key resistance point at 0.6800 to about 0.6510. Its highest point in July coincided with the descending trendline that connects the highest swing in February last year.

The pair has crashed below the 50-day and 100-day moving averages. At the same time, the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the pair will likely continue falling as sellers target the lower side of the ascending channel at 0.6440.