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Summary: Australia's overall employment data unexpectedly declined in July, with the unemployment rate rising to 3.7%. As a result, the AUDUSD fell over 0.50% during the Sydney session, reaching its lowest level since November last year. Meanwhile, the Australian dollar continues to be influenced by the strength of long-term U.S. Treasury bonds.

Fundamentals

In July, Australia saw a decrease of -14,600 in overall employment, significantly lower than the expected growth of 15,200. This decline was mainly attributed to a decrease of -24,200 in full-time positions, while part-time positions increased by 9,600.

The unemployment rate rose from 3.5% to 3.7%, surpassing the market's expectation of 3.6%. The labor force participation rate also decreased from 66.8% to 66.7%.

However, it's not all bleak. The monthly working hours saw a slight increase of 0.2% compared to the previous month. Bjorn Jarvis, ABS head of labour statistics, commented on this aspect, stating, "The strength in hours worked shows that it continues to be a tight labour market."

Bjorn Jarvis pointed out that compared to July 2022, working hours increased by 5.2%, which is impressive and significantly outperforms the annual employment growth rate of 2.8%. He further noted, "The strength in hours worked over the past year, relative to employment growth, shows the demand for labour is continuing to be met, to some extent, by people working more hours."

On the market side, the unexpected drop in Australia's July employment data, ending two months of strong growth, along with a slight increase in the unemployment rate, indicates that the extremely tight labor market might finally be loosening.

The weak data has prompted speculation about the possibility of the Reserve Bank of Australia ending its rate-hiking cycle, dragging the AUDUSD to a nine-month low. Today's data is likely the final blow to expectations of a rate hike in September. Nevertheless, the deterioration of the labor market is likely to continue for a considerable period before the RBA completely eases its policies.

Additionally, minutes from the RBA's meeting indicate that they have noted "some signs that the labor market may be at a turning point," reinforcing the market's expectation that the RBA is unlikely to raise rates again. The primary adverse factors driving the Australian dollar lower include the rise in long-term U.S. bond yields. The last time the 10-year U.S. Treasury yield exceeded 4.25%, the Australian dollar dipped to 0.62. This seems to be the target for the coming month.

Technical Analysis

In recent days, the AUDUSD has shown a sharp downward trend after breaking through two key support levels at 0.6593 and 0.6460, validating the role of the double top formation. In the short term, the price has been significantly oversold, leading to a "continuous replenishment" state after touching the new low of 0.6364 in November last year.

Earlier today, momentum indicators suggest that recent selling has been excessive. Specifically, the MACD is below the zero line, with its red signal line at its lowest level since March, while the RSI hovers within the oversold area around 30. As a result, profit-taking by the bears triggered the "continuous replenishment" state.

Nevertheless, considering the fundamentals of the Australian economy, we still believe that this round of the AUDUSD's overall decline is not yet close to its end. Following the completion of continued replenishment by the bulls, a further downtrend might follow.

If negative pressure persists, prices may retest the 2023 bottom of 0.6364, which held strong in September 2022. Breaking below this level again could potentially send the asset to levels not seen in months, with the November 2022 low of 0.6271 likely acting as a barrier against further decline.

Alternatively, if the asset manages to halt its decline and rebound, a series of previous support areas, such as 0.6457, 0.6563, and 0.6594, could become formidable obstacles for the bulls to overcome. If momentum surpasses the latter, prices may experience a medium-term correction.

Overall, over the past 10 trading days, the AUDUSD has maintained a clear downward trend, signaling the potential for this year's new low to occur again, as the ultimate target of the "crab pattern" has not been achieved. In terms of trading strategy, it is recommended to continue focusing on going short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 0.6450

Target Price: 0.6259

Stop Loss: 0.6620

Valid Until: 2023-08-31 23:55:00

Support: 0.6481, 0.6547, 0.6616, 0.6661

Resistance: 0.6427, 0.6403, 0.6272, 0.6170