Australian dollar stems bleeding

After three losing sessions, the Australian dollar has steadied.  AUD/USD is currently trading at 0.7305, up 0.17% on the day. In the Asian session, the Aussie dropped to 0.7277, its lowest level in a month.

The Australian dollar didn’t get any help from the October employment report, which was showed total employment declining and the unemployment rate rising. The economy shed 46.3 thousand jobs, marking a third straight decline. Unemployment rose to 5.2%, up sharply from 4.6%. The markets gave a thumb down to the news, sending the Australian dollar below the symbolic 0.73 level.

It’s hard to sugarcoat the dismal job numbers, but help may be on the way, with the lockdowns being lifted in Sydney and Melbourne. As the economy continues to re-open, we can expect employment data to improve.

Will RBA sound more hawkish in December?

The RBA is carefully monitoring inflation levels, which have been on an upswing and could become a major headache for the central bank. Core CPI has broken above 2%, the RBA’s lower limit of its inflation target. As well, the Melbourne Institute consumer inflation expectations for November surged to 4.6% y/y, the third straight month above the 4% level. If inflation and inflation expectations continue to climb, the RBA will find it difficult to convince the markets that inflation is transitory and may have to make a hawkish shift at its policy meeting in December.

We continue to see a disconnect between RBA guidance and market expectations, but the central bank is starting to sound more hawkish. In its quarterly summary of the economy, the RBA acknowledged that inflation has risen into its 2-3% target band, a full two years earlier than anticipated.  Governor Lowe had insisted that rates would not rise before 2024, but in the summary, the bank said that a rate hike was possible in late 2023. Still, the markets remain much more hawkish and have priced in several rate hikes for 2022, with the cash rate projected to approach 1.0% by the end of next year.

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AUD/USD Technical

• 0.7330 is a weak resistance line and could be tested during the day. 0.7506 is next
• There are support lines at 0.7254 and 0.7154

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