AUD/USD soars sharply above 0.6850 on weak ISM data and offered US Dollar

• AUD/USD surged on weak US ISM Services data, which contracted to its lowest since 2020.
• The US economy added more jobs than estimated while wage growth eases, helping the Federal Reserve’s job to tame inflation.
• Fed policymakers reiterated the need to curb inflation, emphasizing that they will stay the course.

The Australian Dollar (AUD) rallied against the US Dollar (USD) after the release of crucial economic data in the United States (US), although upbeat, failed to underpin the USD. Additionally, a services PMI survey dropped to contractionary territory, fueling speculations for a recession in the US. At the time of writing, the AUD/USD is trading at 0.6866, some 40 pips above the 200-day Exponential Moving Average (EMA).

Mixed US economic data underpinned the AUD/USD

December’s labor market data in the US painted a mixed report. Although 223K jobs were added to the economy exceeding estimates of 200K, fears that wage inflation would remain stickier waned. Average Hourly Earnings rose by 0.3% MoM, but on an annual basis, fell to 4.6% compared to 5.0% consensus. The slowdown would be welcomed by Fed policymakers, who see wage pressures as one of the factors keeping inflation above its 2% target.

The AUD/USD edged higher on the release and aimed toward the 0.6800 mark. However, weaker-than-expected ISM Services data and shrinkage of US Factory Orders added another leg up in the AUD/USD, extending its gains towards a two-day high of 0.6849.

The ISM Services PMI unexpectedly contracted to 49.6 vs. 55 estimates, and its lowest reading since May 2020, and trailed November’s 56.5 jumps, data released Friday showed. PMI readings below the 50-line signals contraction.

Aside from this, Fed speakers continued to cross newswires. Earlier, Atlanta’s Fed President Raphael Bostic said that December’s employment report does not change his outlook on the economy, emphasizing the need to “stay the course.” Later, Federal Reserve Governor Lisa D. Cooks said that inflation is “far too high” and of “great concern” despite recent reports.

Australia’s next week’s data would feature Building Permits, the release of the Monthly Consumer Price Index (CPI), Retail Sales and the Trade Balance. On the US front, its calendar will feature the Consumer Price Index (CPI), unemployment claims, and the University of Michigan (UoM) Consumer Sentiment.

AUD/USD Key Technical Levels