AUD/USD Fundamental Daily Forecast – Trader Reaction to .7101 Likely to Set the Tone on Friday

The Australian Dollar is trading higher against the U.S. Dollar on Friday after reversing earlier weakness. Traders are likely reacting to fresh economic data from China, but the bigger picture is being controlled by U.S. Treasury yields and demand for risky assets. The currency is currently straddling the mid-point of its two-week range at .7101. Trader reaction to this level is likely to determine the direction of the AUD/USD on Friday.

At 0518 GMT, the AUD/USD is trading .7111, up 0.0011 or +0.16%.

The AUD/USD was under pressure on Thursday, mostly in reaction to weak domestic employment data. Australian Employment Change came in at 5.6K, well below the 15.2K forecast. Last month, the economy added 44.6K jobs. The unemployment rate fell from 5.3 percent to 5.0 percent.

NAB Quarterly Business Confidence came in at 3, down from 7.

In the U.S. on Thursday, U.S. Treasury markets posted a wicked two-sided trade. The first move by yields was to the upside, driven by Wednesday’s hawkish Fed minutes, which strongly indicated the Fed will remain on its tightening path. Yields began to fall on safe-haven buying after European Central Bank President Mario Draghi criticized plans by certain member countries to increase borrowing limits, sending Italian and Spanish yields up sharply.

Stock market weakness in Europe and the United States also encouraged investors to buy German bunds and U.S. Treasurys as safe-haven investments, helping to drive yields from their highs.

U.S. Economic Data

U.S. Weekly Unemployment Claims dropped in the previous week and the number of Americans on jobless rolls returned to levels not seen since 1973, the Labor Department reported Thursday.

Initial state jobless claims decreased 5,000 to a seasonally adjusted 210,000 for the week-ended October 13. Data for the prior week was revised to show 1,000 more applications received than previously reported. Claims fell to 202,000 during the week-ended September 15, the lowest level since November 1969.

The Philadelphia Federal Reserve Index showed that business conditions for the mid-Atlantic region slipped to a reading of 22.2 in October from 22.9 in September thanks to a decline in new orders.

The survey went on to show higher employment at factories in the region, with more than 30 percent of responding firms saying they had increased payrolls.

Forecast

Watch the price action and read the order flow at .7101 on Friday. This will tell you if aggressive counter-trend investors are buying, or if bearish trend-trading sellers have retaken control.

There’s not much to look at from the data front. Traders will mostly be focused on risk sentiment. If risk is on, the AUD/USD could catch a bid. If risk is off and stocks fall and the dollar rises then look for pressure.

Things could get tricky for AUD/USD traders if stocks plunge enough to send investors into the safety of U.S. Treasurys. A drop in demand for risk is usually bearish for the Aussie, but a drop in Treasury yields typically makes the Aussie a more attractive asset. If this becomes the case then look for a possible volatile two-sided trade.