The Australian dollar (AUD) has come under pressure, with the AUD/USD pair ending a four-week winning streak last week, closing at 0.6411 — down 0.33%. This pullback followed a more than 10% rally from its April lows. The strength of the U.S. dollar (USD), bolstered by optimism around trade negotiations and the Federal Reserve’s firm stance on delaying rate cuts, contributed to the AUD’s decline.
Key Factors Ahead for AUD/USD
The outlook for AUD/USD this week will hinge on several developments:
- Progress on offshore trade negotiations and tariffs
- Consumer and business sentiment surveys due Tuesday, May 13
- Wage data expected Wednesday, May 14
- April jobs report to be released Thursday, May 15
JP Morgan Highlights FX Hedging Opportunity
A recent foreign exchange report from JP Morgan has shed light on an evolving dynamic relevant to the Australian dollar. The bank continues to flag concerns over a potential U.S. recession, which could have implications for global investors, particularly Australian superannuation funds with heavy exposure to U.S. equities.
Australian superannuation funds, which manage an estimated A$3.7 trillion, have been increasingly allocating assets to international equities, especially U.S. stocks, amid limited opportunities in domestic markets. According to JP Morgan, these funds currently maintain historically low FX hedge ratios — around 22% — on their U.S. equity holdings.
This low hedging level has traditionally served as a natural buffer; when U.S. equities fall, the AUD tends to decline too, cushioning the blow for Australian investors in USD-denominated assets. However, the correlation between U.S. equities and AUD/USD broke down last month, prompting expectations that superannuation funds may look to increase their hedging ratios — a move that could provide support for the AUD/USD spot rate.
Employment Data in Focus
The Australian Bureau of Statistics will release its April labour force data at 11:30 a.m. AEST on Thursday, May 15.
In March, the Australian economy added 32,200 jobs, falling short of the market forecast of 40,000. The unemployment rate edged up to 4.1% from a downwardly revised 4.0% in February, as the participation rate climbed to a four-month high of 66.8%.
During its April policy meeting, the Reserve Bank of Australia (RBA) acknowledged that labour market conditions “remain tight” and indicated it would continue monitoring global economic trends, domestic demand, inflation, and employment data to guide future monetary decisions.
For April, economists expect a gain of 25,000 jobs with the unemployment rate holding steady at 4.1%. Should the data meet or undershoot expectations — and with inflation back within the RBA’s target range — market consensus leans toward a 25 basis point rate cut, bringing the cash rate down to 3.85% at the RBA’s next meeting.
AUD/USD Technical Outlook
From a technical perspective, the AUD/USD pair completed an ‘ABCDE’ five-wave triangle correction in early April before dipping to a low of 0.5912 on April 9. This formed a potential V-shaped bottom, which often signals medium-term trend reversals.
Late-April analysis suggested that a sustained break above the 200-day moving average (MA) — then at 0.6467 — would validate the V-shaped recovery and point toward a medium-term rally, with the next major resistance at the 200-week MA near 0.6770.
However, last week’s failure to hold above the 0.6500 resistance level, followed by a retreat below the 200-day MA (now at 0.6459), suggests that short-term bullish momentum has faded. Nevertheless, the April low of 0.5912 continues to serve as a medium-term support base.
Once overbought conditions ease and fresh momentum builds, a renewed push above the 200-day MA and a break of last week’s 0.6514 high could open the path toward the 200-week MA at 0.6770.
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