The AUD/USD pair has been in a zone of strong turbulence in recent days — on Wednesday, buyers made their presence felt at the 0.6709 mark, while on Thursday, sellers pushed it down to the lower end of the 0.66 range. Such swings are driven not only by the outcome of the Fed's September meeting. The Australian currency has also played a role, sharply reacting to the published labor market data out of Australia. The release did not favor the Aussie.
Unemployment in August held at the previous month's level, i.e., 4.2%. On the one hand, this is "stability," but it's important to remember that the unemployment rate is a lagging and shaky indicator. Labor market cooling can manifest in other forms (typically, businesses first reduce new hiring, work hours, and temporary contracts before proceeding to layoffs), and the calculation methodology counts only those actively, officially searching for work (if someone is not officially seeking work, they aren't statistically considered unemployed).
In other words, a "stable" 4.2% unemployment rate in this context isn't reassuring, as this figure reflects negative trends with a lag. Meanwhile, more prompt indicators are signaling a deterioration in the labor market. For example, total employment in August fell by 5,000, while most analysts had forecast a 20,000 increase. Moreover, the structure of this indicator shows that the negative dynamic was due to a drop in full-time employment, down by 40,000 jobs. At the same time, part-time employment rose by nearly the same amount (35,000).
What does this mean? Overall, it's a negative signal. It may indicate, for example, that employers are cutting costs by moving people from full-time to part-time (fewer hours worked, thus lower wages). Or, it may mean employers don't see sufficient demand for their products (or services), and are therefore unwilling to hire full-time staff. Overall, such imbalances undermine consumer confidence, demand, and ultimately, the sustainability of the economy (rising hidden unemployment, falling real incomes, and slowing consumer inflation). Of course, this only holds if this trend continues — for example, July showed the opposite imbalance: full-time employment increased while part-time employment decreased. Therefore, August's result alone doesn't provide grounds for long-term fundamental conclusions. But the "warning bell" has rung.
And this isn't the only such warning. For instance, the August report showed an unexpected drop in the labor force participation rate. For the three preceding months, the indicator was at 67.0%, but in August, it slipped to 66.8%. Most analysts were sure it would be 67.0% again.
Overall, the report signals a cooling in the Australian labor market in August.
As mentioned above, the Aussie initially reacted negatively to the release but then partially recovered lost ground. Traders quickly absorbed this fundamental factor for one simple reason: a single weak report cannot radically change the broader picture for the Australian dollar. Following the September RBA meeting, all parameters of monetary policy will almost certainly remain unchanged, while the further easing outlook will depend on, firstly, the dynamics of quarterly inflation (Q3 data will be released in October) and on the trajectory of "Australian Nonfarm Payrolls." As we've seen, the Australian labor market performed strongly in July and the opposite in August. Which way the scales tip in September-October (the next meeting after September's is only in November) remains to be seen.
That's why market participants didn't dramatize matters, despite the "red numbers" in many parts of the report.
What's next? In my view, the AUD/USD pair will now mirror the trajectory of the US Dollar Index; in other words, the Aussie will track the greenback. The Australian dollar isn't able to pull the pair higher on its own, meaning sustained growth in AUD/USD is only possible if DXY sees steady declines.
At the moment, AUD/USD can't settle on a direction, as shown by sharp price swings — first in the 0.67 area, then down to the base of the 0.66 figure. In times of such uncertainty, it makes sense to stay out of the market while watching the resistance level at 0.6640 (the upper line of the Bollinger Bands on the W1 timeframe). If the Aussie can consolidate above this level, buyers will probably try to retest the 0.67 area — more precisely, the next resistance at 0.6710, which matches the upper Bollinger Band on D1. However, should the US dollar gain strength again across the market, the Aussie won't be able to hold off AUD/USD sellers — in that case, the pair will once again retreat to the 0.65 area, in the 0.6510–0.6570 range (the upper edge of the Kumo cloud, the middle Bollinger Band, which coincides with the Kijun-sen line on D1).
