With another drop in Australian employment, the AUD/USD exchange rate might suffer.Because of this, the AUD/USD exchange rate is back above its 50-day simple moving average (0.7303), and it may continue to retrace its drop from its September high (0.7478) as it continues to make higher highs and lower lows, as it did last week.

The Reserve Bank of Australia (RBA) acknowledges that the “Delta outbreak has interrupted the recovery of the Australian economy and GDP is expected to have declined materially in the September quarter,” which could weigh on the AUD/USD exchange rate. Employment is expected to drop by 137.5K jobs in September after contracting by 146.3K jobs in August, and this recent weakness in the labor market could keep the RBA on hold.

Gov. Philip Lowe and his team are therefore likely to stick with their current monetary policy course, even though “the outbreak of the Delta variant had delayed, but not derailed, the recovery.” However, the Australian dollar may face headwinds ahead of the next RBA meeting on November 2, as the central bank relies on unconventional measures to support the economy.

As a result, while Chairman Jerome Powell and Co. unveil a tentative exit strategy, the diverging paths of the RBA and the Federal Reserve may keep the AUD/USD rate under control. However, a further advance in the exchange rate could fuel the recent flip in retail sentiment, as was seen earlier this year.

The IG Client Sentiment shows47.99% of traders are currently net-long AUD/USD, with the ratio of traders short to long standing at 1.08 to 1.

The number of traders net-long is 2.18% lower than yesterday and 9.08% lower from last week, while the number of traders net-short is 8.29% higher than yesterday and 12.29% higher from last week. The decline in net-long interest could be a function of profit taking behavior as AUD/USD trades to a fresh monthly high (0.7385), while the rise in net-short position has helped to fuel the flip in retail sentiment as 52.92% of traders were net-long the pair last week.

With that said, AUD/USD may stage a larger advance ahead of Australia’s Employment report as it extends the series of higher highs and lows carried over from last week, but the ongoing disruptions caused by COVID-19 may continue to drag on the Australian Dollar as the RBA seems to be on a preset course for the remainder of the year.

AUD/USD Rate Daily Chart

Trading View, an online publication

Keep in mind that the AUD/USD currency pair has fallen below the 200-day simple moving average (0.7574) for the first time in over a year, with the decline from the high of May (0.7891) pushing the Relative Strength Index (RSI) into oversold territory for the first time since March 2020 (see chart below).

Consequently, the 50-day simple moving average (0.7303) developed a negative slope as AUD/USD traded to new yearly lows in the second half of 2021, but lack of momentum to test the low of the month of August (0.7106) may keep the exchange rate within a defined range as it trades back above the moving average in the future.

A closure over 0.7390 (38.2 percent expansion) to 0.7390 (61.8 percent retracement) is needed to put the 0.7440 (23.6 percent growth ) level on the radar, although the drop from the September high (0.7478) may be retraced further by the AUD/USD pair.

If efforts to close above the 0.7370 (38.2% expansion) to 0.7380 (61.8 percent retracement) region fail, AUD/USD may return to the 0.7290 area (23.6% expansion), with the next area of interest being around the 0.7180 (61.8 percent retracement) to the 0.7210 level (78.6 percent retracement).

The 0.7130 (61.8 percent retracement) to 0.7140 (23.6 percent expansion) area must be broken before the end of September (0.7170), with a break of the August low (0.7106) opening up the Fibonacci overlap around 0.7060 (61.8 percent expansion) to 0.7090 in the meanwhile (7.8 percent expansion).


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