How to position for further gains in the AUDUSD

The AUDUSD screamed 3% higher last week to close at a nine-week high after U.S inflation surprised to the downside, boosting equities and risk-sensitive currency pairs, including the AUDUSD.   

While the AUDUSD has seen a pullback in early trading this week following another round of dour Chinese economic data, the fortunes of the AUDUSD this week will also be guided by key local data releases.

This includes the RBA meeting minutes from the August meeting, Q2 2022 Wage Price Index and the labour force survey for July.

Last month the unemployment rate fell to a fresh record low of 3.5% from 3.9%, boosted by a booming 88.4k increase in employment. July jobs data is expected to show a 25k increase in employment for a ninth consecutive gain, leaving the unemployment rate unchanged at 3.5%.

Q2 Wages data is also expected to be strong. The market is looking for a 0.8% rise in Q2 that would take the annual rate to 2.7%, the highest rate of wages growth since 2018 and well above the low of 1.4% seen in 2020.

Finally, the RBA meeting minutes from the August meeting will be released and scanned for clues around the softening in the RBA’s tone that might provide an insight into whether the board opts for a 50bp or 25bp rate hike when it meets in three weeks times.

Given the expectation of another round of firm labour market data, we expect the RBA to deliver a fourth consecutive 50bp rate hike in September which should see the recent bout of support for the AUDUSD maintained.

Noticeably the move above .7050 last week triggered an inverted head and shoulders pattern that implies a medium-term low is in place at .6681 and projects a move to .7400c.

To take advantage of this we favour buying dips in the AUDUSD into the .7080/60 support zone. Stops on longs would be a daily close below the neckline at .7030ish. The initial profit target is the 200-day moving average at .7150

Source Tradingview. The figures stated are as of August 15^th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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