AUD/USD Weekly Outlook: Australian Dollar Bulls Eye Breakout of 66c

AUD/USD climbed on Friday as US dollar weakness followed a soft Nonfarm Payrolls (NFP) report, with bulls now eyeing a breakout above the 0.66 handle. A weaker labour market, rising Fed cut bets, and firmer Australian data have underpinned sentiment, while this week’s US inflation releases could set the next leg for the pair.

View related analysis:

Chart Prepared by Matt Simpson, data source: London Stock Exchange Group (LSEG)

AUD/USD Weekly Outlook: Bulls Target 0.66 Breakout

The US dollar was the weakest major currency on Friday after a soft Nonfarm Payrolls (NFP) report boosted bets that the Fed could deliver three 25bp rate cuts by December. The headline jobs gain was just 22k, with manufacturing payrolls down 12k and services lower by 16k. The unemployment rate climbed to 4.3%, its highest since October 2021, while underemployment (U6) rose to 8.1%.

AUD/USD rallied as much as 1.1% to Friday’s high, with bulls now eyeing a breakout above the 0.66 handle. A move higher looks increasingly feasible as expectations for near-term RBA cuts fade. If this week’s US inflation report shows tariff effects on prices remain muted, further US dollar weakness could provide an additional tailwind for the Australian dollar.

Chart Prepared by Matt Simpson, data source: Investing.com

Australian Business And Consumer Sentiment To Rise?

Business confidence rose to a near two-year high of 7 in July, according to the latest NAB survey — well above its long-term average of 5. A similar pattern looks likely in the upcoming Westpac consumer sentiment survey, with the previous report showing gains across all internal indices following the RBA’s most recent rate cut. Given the run of stronger data in recent weeks, I expect sentiment will continue to improve in this week’s release.

Domestic demand helped GDP beat expectations in Q2, and recent household spending data shows consumers are not holding back, particularly on services. Full-time employment also rebounded in the latest jobs report, while unemployment edged lower from already historically low levels — further underlining resilience in the economy. Which is why RBA cash rate futures imply just a 16% chance of a cut at their next meeting.

Chart Prepared by Matt Simpson, data source: Source: NAB, Westpac, LSEG.

US CPI and PPI in focus

Fed funds futures now fully price in a September Fed cut as a done deal, leaving incoming data to shape expectations for October and beyond. This week’s CPI and PPI reports will be critical, though both measures have been trending modestly higher. Recent Fed commentary suggests policymakers are less concerned about tariffs fuelling runaway inflation, which could give them scope to cut. Unless core CPI or PPI shows a sharp jump, markets are likely to put greater weight on labour market weakness when reassessing the Fed’s path. Naturally, flat or softer CPI reads will likely provide the green light for traders to short the US dollar on bets of back-to-back Fed cuts into the new year.

Chart Prepared by Matt Simpson, data source: Source: US Bureau of Statistics, LSEG

AUD/USD Correlations

The strong correlation between AUD/USD and NZD/USD is back in play over the 10 and 20-day time frames. Though it is interesting to note that the usually strong relationships with the US dollar and gold have become less reliable. While AUD/USD tends to track the Chinese yuan over the 20-day, its near-term 10-day correlation is now quite weak.

Chart Prepared by Matt Simpson, data source: Source: LSEG

AUD/USD Futures Positioning – COT Report

A significant round of short covering hit the Australian dollar futures market last week. Large speculators reduced gross-shorts by -16.9k contracts (-13.1%) — the fastest pace since March 2021. Asset managers cut gross-shorts by -14.9k contracts (-12.1%), bringing the combined reduction to -34.5k contracts. Net-short exposure fell by -17.9k contracts to a 4-week low of -82.6k among speculators, while asset managers trimmed -13k contracts, taking their net-shorts to a 3-week low of -66.1k.

Chart analysis by Matt Simpson - data source: CME, LSEG

AUD/USD Technical Analysis

The battler has refused to roll over, with bulls stepping in each time bears attempted to force AUD/USD down to 64c. A double bottom formed around 0.6420 on the weekly chart, after which momentum shifted higher, with prices now using the 50- and 20-week EMAs as support over the past fortnight.

On the daily timeframe, the 20- and 50-day EMAs are also acting as support, creating a strong cluster for dip buyers. Friday’s bullish engulfing candle highlights a pickup in bullish momentum following a week of choppy sideways consolidation.

The bias remains for bulls to seek dips with a view to breaking above the 0.66 handle.

Traders should note the 200-week SMA and EMA at 0.6677, near the November high and the 0.67 handle, which mark the next key resistance zone for AUD/USD bulls.

Chart analysis by Matt Simpson - data source: TradingView AUD/USD

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.