AUD/USD: China's Mixed Signals and the 60k Payrolls Test

The AUD/USD pair is caught in a squeeze, with the immediate catalyst being a clash between weak Chinese growth signals and a resilient US dollar. The pair is range-bound near 0.6690, testing the 20-period moving average and down for a third straight day. This technical setup leaves it vulnerable, with the immediate risk skewed to the downside if the US dollar finds further fuel from Friday's jobs report.

China's data provides the mixed signal that fails to counter the dollar's strength. While headline consumer inflation accelerated to 0.8% year on year in December-the highest level since 2023-this is largely driven by food prices. The critical contrast is with subdued core inflation, which held at 1.2% year on year, and the persistent deflation at the factory gate, where prices fell 1.9% year on year. This divergence signals weak underlying demand, undermining any narrative of a broad-based Chinese recovery that could support the commodity-linked Aussie.

Against this backdrop, the US dollar is finding support ahead of the decisive event. Markets are looking for confirmation of a resilient labor market in the Friday's US Nonfarm Payrolls report, with expectations for around 60,000 new jobs. Recent ADP data showed a slight rise in private hiring, and the ISM Services PMI came in higher than expected, suggesting certain sectors remain strong. The dollar edged higher Thursday as traders await this data, betting it will keep the Federal Reserve on hold and the greenback buoyed.

The bottom line is that China's mixed data lacks the power to offset a confirmed dollar rally. For now, the AUD/USD is pinned between these two forces, with the jobs report set to break the stalemate.

The Catalyst: US Payrolls Data and Its Implications

The immediate catalyst for the AUD/USD's direction is the Friday US Nonfarm Payrolls report. The market is looking for a specific print: around 60,000 new jobs in December, with the unemployment rate expected to fall to 4.5%. This figure is a key test of the dollar's strength narrative. A result meeting or exceeding expectations would confirm a resilient labor market, reinforcing the view that the Federal Reserve will maintain its pause in rate cuts until at least the second quarter.

Recent data provides a mixed but leaning-positive backdrop. The ADP report showed a reversal from November's decline, with private sector hiring increasing by 41,000 jobs in December. This suggests the labor market is holding firm, even if the pace is modest. The ISM Services PMI also came in higher than expected, pointing to strength in certain economic sectors. Together, these signals have already given the dollar a boost, with the greenback edging higher Thursday as traders position ahead of the official data.

The implication for the Fed is clear. Strong US data would solidify the argument that inflationary pressures remain contained and the economy is self-sustaining. This makes a rate cut this year less urgent, keeping the door closed on dovish policy. As one analysis noted, the larger-than-expected rise in household spending in Japan and German industrial output appeared to have little impact on the dollar, which is instead being driven by expectations for sustained US economic health. The market is already pricing in a Fed hold through January, and a solid payrolls report would cement that view.

For the AUD/USD, the setup is straightforward. The pair is already under pressure from China's weak demand signals and a narrowing trade surplus. A strong US jobs report would add fuel to the dollar's rally, likely pushing AUD/USD toward the downside. The key risk is that the data disappoints, which could trigger a sharp reversal as traders reassess the Fed's timeline. For now, the event is a binary test of the dollar's current strength.

The Risk/Reward: Scenarios and Key Levels

The immediate risk/reward for AUD/USD hinges on the binary outcome of the payrolls report. The setup is clear: a strong print confirms dollar strength and pushes the pair lower, while a weaker print could spark a reversal.

A bullish scenario for the Aussie would require the US data to disappoint. If the December jobs figure falls significantly short of the 60k expectation, it would undermine the resilient labor market narrative and likely trigger a sharp dollar sell-off. This could accelerate the pair's decline toward key support. The first major floor is the 2026 low of 0.6676, which has already been tested this week. A break below that level would open the path to deeper technical support, potentially targeting the 200-period MA at 0.6625 and then the horizontal support at 0.6600.

On the flip side, a positive jobs print would confirm the dollar's strength and likely push AUD/USD lower. The immediate technical target is the 20-period moving average, which has been a consistent ceiling. A decisive break below that level would signal the downtrend is resuming. For the bulls, a break above the 20-period MA at 0.6720 could gather buying strength and lead to a test of the weekly highs near 0.6765. A sustained move above that resistance would set a longer-term target of 0.6800.

Contextually, the current price near 0.6690 is trading just above the 2026 average exchange rate of 0.6707. This suggests the pair is currently near its annual mean, making it a pivotal point. The event-driven catalyst will determine whether it moves decisively above or below this average in the near term.