The Australian dollar is not weak, but its failure to hold 77 cents will worry the bulls

Photo: Weakest/ by Lee Netherton © 2017, Flickr, licensed under Creative Commons Attribution 2.0 License.

Key takeaway

To the disappointment of many, but the surprise of few the Australian dollar was unable to hold above 77 cents in the past 24 hours. 

That was despite a weaker US dollar which lost significant ground against the Euro, yen, and Swiss franc. But context is everything. So it is worth noting the AUDUSD fall of 0.18% over the past 24 hours is consistent with a similar move in the Kiwi, and a very small dip for the Canadian dollar. And the Aussie outperformed EM currencies like the real, the rouble, and the rand.  

So this is less about the graveyard of Aussie bulls above 77 cents and more about the US dollar, and rotation within currency markets. 

What You Need To Know

The AUDUSD really needed a strong employment number yesterday to kick it up and sustainably through the 0.7720 level. Sure it did get up there briefly making a high in the wake of the jobs data of 0.7732ish but the data was only a marginal headline beat and contained so disturbing details which made it look softer than the headline number. 

In summary the 5.7% unemployment print was positive, as was the 13,500 rise in total employment. But the 44,800 fall in full-time employment worried folks as it speaks to ongoing spare capacity in the Australian jobs market. Hours worked in the month actually increased by 10.2 million however. 

As I wrote in my overnight wrap, not for a moment do I believe that 44,800 fulltime jobs were actually lost. But the data we have is the data we have and while the ABS reports rubbery numbers like this traders have no option but to trade them. So the Aussie is lower this morning at 0.7694.  

Structurally though there is a longer term sign that the unemployment rate is what traders, and global investors, look to and recall once the smoke and fury of the jobs data has gone. 

That's not to say that actual job creation doesn't matter. But it does suggest when investors think of the Australian jobs market they're thinking about the unemployment rate. But what this also says is that unemployment needs to come down to give the Aussie a further boost. 

That's for another day. But if the Westpac employment index and the NAB business survey are right Australian workers can look forward to a pick-up in the jobs market. 

Looking at the price action the move lower in the AUDUSD has actually seen my personal system generate a sell signal if the AUDUSD falls below 0.7684 today with a stop above yesterday's high. Fundamentally that feels a little early but as a pure technical system, the signal is the signal. 

0.7600/20 is the target for initial support if that level breaks. 

Naturally what's interesting about this move is that the Aussie is weak while the US dollar has lost some lustre against teh majors and gold is rallying. It's an interesting dynamic. 

On the top side yesterday's high and then 0.7745 is resistance. 

Have a great day's trading

Greg McKenna

Chief Market Strategist

Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.

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