Less than a week ago, a disappointing GDP report helped to dampen enthusiasm for the Australian dollar (FXA) following a policy statement from the Reserve Bank of Australia (RBA). Now, the script has flipped after the Australian Bureau of Statistics reported a strong employment report for November, 2017.
While the unemployment rate stayed at 5.4%, the number of employed Australians soared by 61,600 (seasonally adjusted) from October. The number of employed also increased 3.2% year-over-year. Sixty-eight percent of the newly employed received full-time work. These numbers were enough to send the Australian dollar (NYSE:FXA) soaring.
Suddenly, AUD/USD no longer looks like its breakdown will continue. On top of post-Fed dollar weakening, the Australian dollar’s post-jobs gain sent AUD/USD punching through its downtrending 50DMA for the first time since September.
Suddenly, AUD/JPY is on the edge of a major (and bullish) breakout above both its 200 and 50DMA resistance.
If the strength of the Australian dollar continues from here, I will be compelled to flip from a bear to bull on the currency. I will also be looking for traders to move their expectation of a 35 basis point rate hike from early 2019 to, say, mid 2018. I will also look to see whether speculators send net long contracts higher again. Perhaps most importantly, a strengthening AUD/JPY would likely firm up my bullishness on the stock market.
Be careful out there!
Full disclosure: short AUD/JPY