AUD USD pares gains ahead of Friday s US employment data

AUD/USD gained early on Thursday as the US dollar pulled back, but quickly pared most of those gains by the late afternoon. All eyes are focused once again on the potential timing of a Fed rate hike as well as one of the key drivers of that timing – the US employment situation. Friday’s potentially pivotal non-farm payrolls report should fuel further speculation over this rate hike timing, and lead to corresponding volatility for dollar-based currency pairs.

The Institute for Supply Management in the U.S. reported early on Thursday that manufacturing expanded at a lower-than-expected rate. This report did little to hold back the US dollar, however, as the greenback quickly rebounded after the report.

The next major data points upcoming for the AUD/USD are Australian retail sales, which will be released on Friday in Australia, and the non-farm employment change and unemployment rate reports that will be released on Friday morning in the US.

For the US non-farm payrolls number, the consensus estimate is for 202,000 jobs added in September and a 5.1% unemployment rate. To add some context, this past Wednesday’s ADP report on private employment in the US estimated that 200,000 jobs were added in September, significantly beating prior expectations of 192,000.

From a technical perspective, AUD/USD has been consolidating for the past week around the key 0.7000 level after having dropped from 0.7200-area resistance and the 50-day moving average two weeks ago. Currently, the pair is trading not far above its six-year low of 0.6903 that was just established less than a month ago in early September. On a longer-term basis, the downtrend for AUD/USD is strong and well-established back to mid-year last year.

If the non-farm payrolls and unemployment rate data generally meet or exceed expectations, the US dollar should strengthen on stronger 2015 rate hike ramifications, thereby potentially pressuring AUD/USD back down towards its long-term lows. In that event, the currency pair could quickly re-test the noted-0.6900-area low and further target the 0.6800 support objective to the downside.

With any negative surprise from Friday’s US employment numbers, a rebound for AUD/USD should meet continued resistance around the noted 0.7200 level.