AUD/USD on the back foot, but holding above 0.7050 for now as NFP looms

• AUD/USD is trading with a downside bias pre-NFP and recently bounced at 0.7050.
• A strong report would endorse the Fed’s hawkishness and could push AUD/USD lower towards the key 0.7000 level.

AUD/USD continues to trade with a negative bias as the key US jobs report approaches. The pair recently bounced at the 0.7050 level, which was its lowest in over 12 months, and currently trades around 0.7060 with on the day losses of about 0.4%. Uncertainty about how the new Omicron Covid-19 variant is going to impact short-term global economic outlook continues to weigh on risk assets and seems to be weighing slightly on the Aussie on Friday.

On the week, AUD/USD’s losses now stand at about 0.7%. This is not as bad as many traders might have thought in light of this week’s hawkish pivot for Fed Chair Jerome Powell and a string of strong US macro releases. Wednesday’s smaller than expected decline in Australia GDP in Q3 has probably helped stem the tide against the Aussie, as it keeps the prospect alive that the RBA may also do a hawkish pivot to signal potential hikes in 2023. But that is not the main focus of the market this Friday. The main focus is on the US November jobs report.

The median bank forecast is for the headline NFP number to come in at 550K, which would mark a slight improvement from October’s 531K reading. The unemployment rate is seen falling to 4.5% from 4.6%. The YoY pace of growth in Average Hourly Earnings is seen rising slightly to 5.0% from 4.9% last month. Alternative labour market data from November/the official jobs report survey period has for the most part been strong; ADP’s estimate of employment change came in at 534K on Wednesday, the employment components of the ISM and Markit PMI surveys (not including the ISM service PMI, which is yet released) all showed slight improvement versus October, weekly initial jobless claims in the November survey week was lower versus the October survey week and Challenger job cuts fell to a fresh low since 1993.

A strong report, though expected, would endorse the Fed’s more hawkish view and likely support the US dollar. AUD/USD bears would likely then look for a continuation of the recent bear trend and perhaps a test of the Q3/Q4 2020 lows at 0.7000.