Australian dollar soars as US unemployment claims jump

• AUD/USD soars after US jobless claims surprise
• Chinese CPI and PPI decline in May

The Australian dollar is trading quietly on Friday, at 0.6713. There are no US or Australian releases on the calendar, which means it should be an uneventful day for the Aussie.

It has been a good week for the Australian dollar, which is up 1.6% on the week. The two drivers for the strong gains were the RBA’s surprise rate hike and a higher-than-expected US unemployment claims report.

US unemployment claims surprise on the upside

In the US, unemployment claims jumped to 261,000, up from 233,000 prior. The US labour market has remained strong despite the Fed’s aggressive tightening, as we saw in last week’s sizzling nonfarm payrolls report. Still, there have been some cracks, such as a jump in the unemployment rate in the May report.

A hiccup in one unemployment claims release is not significant on its own, but the timing is important with the Fed meeting next week. The Fed is expected to pause rates after 10 straight increases, and the unemployment report will provide support for those members leaning towards voting to hold rates. With the markets expecting a pause, the US dollar is under pressure and the greenback retreated against the major currencies on Thursday.

The Australian dollar received a boost from the Reserve Bank of Australia, which surprised the markets and raised rates by 0.25%, bringing the cash rate to 4.1%. The RBA statement hinted at further tightening in order to bring inflation back to target more quickly. Governor Lowe was even more explicit in remarks at a public engagement on Wednesday, saying that the Bank has been patient in the battle to get inflation back to the 2-3% target “but our patience has a limit and the risks are testing that limit.”

China’s reopening has been rocky, and the country’s economic releases can have a strong impact on the Australian dollar, as China is Australia’s number one trading partner. There are concerns about deflation in China, and the May data, released today, have fuelled those worries. Inflation came in at -0.2% m/m, following a -0.1% reading in April. The Producer Price Index declined by 4.6% y/y in May, worse than the -3.6% read in April and missing the consensus of -3.6%. If upcoming releases point to weak growth in the Asian giant, the Australian dollar could find itself under pressure.

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AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6729. Above, there is resistance at 0.6858
• There is support at 0.6677 and 0.6658