The spike in unemployment in July, as noted by Arch Capital Chief Global Economist Parker Ross, was attributed to temporary layoffs. This indicates that the increase in unemployment was not necessarily due to underlying economic weaknesses but rather a temporary disruption in the labor market. Ross suggests that if these layoffs were indeed temporary, a recovery in unemployment could be expected in the August jobs report.
Investors are advised to also consider service sector data, which accounts for over 70% of GDP. Economists anticipate a drop in the ISM Services PMI from 51.4 in July to 51.1 in August. A significant decline in the PMI could signal recessionary pressures and potentially lead to expectations of a 50-basis point Fed rate cut in September. This more dovish rate path could drive demand for the AUD/USD pair.
S&P Global Market Intelligence Chief Business Economist Chris Williamson highlighted that while there is solid growth in August, concerns about hiring difficulties could impact overall GDP growth. Elevated pay rates and input cost inflation could pose challenges to sustained economic expansion. Additionally, economic imbalances may slow down growth in the near term.
The trajectory of the AUD/USD pair will be influenced by trade data from Australia and statements from RBA Governor Michele Bullock. Positive trade figures and hints of an RBA rate hike could push the pair towards $0.68. Conversely, weaker economic data in the US might also fuel demand for the AUD/USD, but fears of a hard landing in the US could limit gains.
Technical Analysis and Price Levels
From a technical standpoint, the AUD/USD is positioned above the 50-day and 200-day EMAs, signaling a bullish bias. A breakout above $0.67500 could open the door for a test of the $0.67967 resistance level. Further strength above this level could target $0.68500. On the downside, a breach of the $0.67003 support level could lead to a decline towards the 50-day EMA.
As investors navigate through the complexities of the global economic landscape, it is essential to monitor key economic indicators, central bank actions, and geopolitical developments that can impact currency pairs like the AUD/USD. By staying informed and adapting trading strategies based on real-time data and expert insights, traders can better position themselves to capitalize on market opportunities and manage risks effectively.