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Summary: In October, Australia added 55,000 new jobs, surpassing the expected 22,800, while the unemployment rate rose to 3.7%, in line with expectations.

Fundamentals

Australia's employment situation in October exceeded expectations, with the economy creating 55,000 new jobs. This surpassed the market's expected 22,800 and was significantly higher than the 7,800 in September. The unemployment rate increased from 3.6% to 3.7%, meeting expectations, and the labor force participation rate rose from 66.8% to 67%.

While the October employment report is positive, it is unlikely to have a significant impact on the Reserve Bank of Australia's (RBA) interest rate policy. The substantial increase in employment is mainly in part-time positions, driven by the surge in temporary jobs after the referendum on October 14. The market shrugged off these data, leading to a decline in the Australian dollar.

After the RBA raised interest rates to 4.35% earlier this month, the market has fully digested the possibility of a pause in the December meeting. However, the probability of a rate hike in February 2024 is still increasing, contingent on data, especially the fourth-quarter inflation report in January.

Australia's wage growth rate for the third quarter rose by 1.3% on a quarterly basis, in line with market expectations and higher than the upwardly revised 0.9% in the second quarter. This is the highest recorded increase since 1997, but the surge is mainly due to the increase in the minimum wage and the pay rise for aged care workers. Like the employment data release, the significant rise in wage growth has been largely overlooked by the market, with little impact on the Australian dollar. The market still believes that the RBA's rate cycle has peaked, and the futures market has almost no impact on the possibility of a rate hike in the December meeting.

We did see a slight uptick around noon when the data was released, but the asset seemed to struggle to break through the resistance above the 0.6500 level and quickly retreated below that level. Looking at the 4-hour chart of AUDUSD, a double top formation testing the major resistance is underway, with both peaks entering extremely overbought levels. Unless we see another bout of USD selling, the asset may potentially return to the mid-price range of 0.6400. For the remaining time this week, the only major news from the US is the weekly jobless claims, making it worth monitoring.

Technical Analysis

Following the double-top formation in mid-July, the AUDUSD experienced a significant decline, marking consecutive monthly lows. However, as the price has not yet broken below the previous low of 0.6169, it has instead broken above the top of the range that began in mid-August.

As the title suggests, this "double top" is not the same as the previous one. The double top formed in mid-July indicated a downtrend, while the double top formed yesterday signifies the beginning of an uptrend. This is because the range breakout yesterday was to the upside, not the downside.

Nevertheless, since the 4-hour chart's closing has not yet breached the key mean of 0.6520, the market needs to see a certain retracement before further upward movement. This also implies that the price is not likely to fall below the range bottom of 0.6270.

A bullish move could drive the price up to the recent three-month high of 0.6541. Further attempts at upward movement may face resistance at the July support level of 0.6594, which coincides with the 200-day SMA. Subsequently, there will be a test of the 0.6600-0.6700 range, aiming to return to the central area of the price range from late February to mid-July.

Overall, due to different technical signals, the rebound of the AUDUSD seems to be losing momentum in the short term. To restore confidence in the recovery for the bulls, the asset must reclaim the 200-day SMA. In terms of trading strategy, buying the dips is recommended.

Trading Recommendations

Trading Direction: Short

Entry Price: 0.6410

Target Price: 0.6700

Stop Loss: 0.6270

Valid Until: 2023-11-30 23:55:00

Support: 0.6391, 0.6338, 0.6286

Resistance: 0.6520, 0.6541, 0.6588