After rebounding last Thursday from a local 10-month low of 100.68, the dollar index (DXY) rose sharply on Friday. The U.S. labor statistics published on Friday contributed to the strengthening of the dollar and the growth of its index. The U.S. Labor Department reported that nonfarm payrolls rose by 517,000 in January, and unemployment fell to 3.4% (from 3.5% in December). The published NFP data was also much stronger than forecast (+185,000, after December's rise of +260,000).
At the same time, the annual growth of the average hourly wage of Americans amounted to +4.4%, indirectly indicating the continuing pressure from consumer inflation.
Immediately after the publication of this report, the dollar strengthened sharply, and its DXY index closed the trading day on Friday at around 102.75, 2% above the local 10-month low of 100.68, reached on Thursday, ahead of the NFP release.
The published data gave confidence to the buyers of the dollar, and today it is growing again, while its DXY index has already overcome 103.00.
Nevertheless, this upward rally is still not enough for the dollar to reverse the negative dynamics. In general, the downward dynamics of the dollar and the DXY index still prevail. There is still a threat of a renewed decline in DXY towards the psychologically important level of 100.00.
This week will not be particularly saturated with the publication of U.S. macro statistics. Most likely, the dollar will retain the strong bullish momentum received on Friday. But whether it will be able to develop it significantly is still in question.
In the dynamics of the main dollar currency pairs this week, it is probably worth focusing on the dynamics of the U.S. dollar counterparts and on the incoming important macro statistics from other countries with developed economies.
In particular, Australia's foreign trade statistics will be released at the beginning of the trading day tomorrow, and the RBA interest rate decision at 03:30 (GMT).
The interest rate is widely expected to be raised again, by 0.25%, to 3.35%.
At its meeting in December, the Reserve Bank of Australia raised its interest rate by 0.25%, thus preferring to move in smaller steps than other major world central banks in the fight against high inflation.
"With the move towards full employment and data on prices and wages, some scaling back of the emergency monetary support provided during the pandemic is appropriate," and "the (central bank) board will do everything necessary to ensure that inflation in Australia returns over time to the target level. This will require further interest rate hikes in the future," RBA Governor Philip Lowe said last summer. And so far, the RBA is moving along this path.
And although in response to the December decision of the RBA, the Australian dollar reacted very restrainedly, nevertheless, the AUD/USD pair, also taking advantage of the weakness of the U.S. dollar, has grown since the beginning of 2023, adding another 3.6% and reaching a new local and 7-month high of 0.7157 in early February.
However, the fall in the past two trading days (after the publication of strong macro statistics from the U.S.) was enough to halve the AUD/USD gains of the previous month.
Today, during the Asian trading session, the pair made an attempt to recover from the strongest fall last Friday. However, this attempt was unsuccessful. With the start of the European trading session, the AUD/USD decline resumed, and the pair headed towards the key support level of 0.6855, which separates the medium-term bull market from the bear market.
A break of the 0.6820 support level will indicate that AUD/USD is returning to the long-term bear market zone.
The Australian dollar is still receiving third-party support from macro data from China, where anti-COVID restrictions have also been significantly eased, which should have a very positive effect on the recovery of the Chinese economy, which actively uses Australian raw materials: Australia, as you know, is a major exporter of strategic commodities, in particular, coal, liquefied gas, iron ore, gold.
On Tuesday evening, data on business activity in the construction and manufacturing sectors of the Australian economy will also be released.
It is also worth paying attention to the speech on Tuesday (at 17:40 GMT) by Fed Chairman Jerome Powell, which can again sharply increase the volatility in USD quotes, which means all major dollar currency pairs, including AUD/USD. Powell may once again explain the recent decision of the U.S. Central Bank to raise the interest rate by 0.25% and touch upon the prospects for the Fed's monetary policy. If not, then the reaction to his speech will be weak.
