The recent spike in unemployment in July has raised concerns among economists and investors regarding the state of the US labor market. According to Arch Capital Chief Global Economist Parker Ross, the increase in unemployment cannot be attributed to Hurricane Beryl, and there is no clear common theme across the key drivers of unemployment in terms of states, industries, or reasons. Temporary layoffs seem to have played a significant role in the rise in unemployment, leading to speculation about the possibility of a recovery in the upcoming August jobs report.
In addition to the US labor market, investors should also pay attention to the service sector data, which accounts for over 70% of the GDP. Economists project a decline in the ISM Services PMI from 51.4 in July to 51.1 in August. A substantial drop in the PMI could signal a recession, potentially increasing bets on a 50-basis point Fed rate cut in September. A more dovish Fed rate path typically drives buyer demand for the AUD/USD pair. Weaker-than-expected numbers without signs of a hard landing could push the pair towards $0.68.
S&P Global Market Intelligence Chief Business Economist Chris Williamson highlighted the growth prospects for the economy, indicating solid growth in August that could translate into robust GDP growth beyond 2% annualized in the third quarter. Despite this positive outlook, concerns about economic imbalances and hiring difficulties in the service sector persist. These challenges may slow down growth and keep input cost inflation at elevated levels compared to historical standards.
The AUD/USD pair has been hovering above the 50-day and 200-day EMAs, signaling bullish price movements. A breakout above $0.67500 could pave the way for a test of the $0.67967 resistance level, with a further surge towards $0.68500 if the resistance is breached. On the other hand, a drop below the $0.67003 support level could lead to a fall towards the 50-day EMA. With a 14-period Daily RSI reading of 51.55, the Aussie dollar might rally towards $0.68500 before entering overbought territory.
Investors should closely monitor trade data from Australia, the US economic calendar, and central bank commentary for insights into the future direction of the AUD/USD pair. Upbeat trade figures and hints of an RBA rate hike could drive the pair towards $0.68, while weaker US data may also fuel buyer demand for the pair. However, fears of a hard landing in the US economy could cap any significant gains in the AUD/USD pair.
The recent unemployment data and service sector indicators pose challenges to the AUD/USD pair’s performance. The market sentiment will likely be influenced by economic data releases, central bank policies, and trade developments in the coming weeks. Investors should stay vigilant and adjust their trading strategies accordingly to navigate the uncertain landscape of the forex markets.
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