- Summary:
- AUDUSD remains correlated to the U.S. stock market. Despite disappointing employment data, the AUDUSD pair will likely follow the S&P500.
The AUDUSD pair is one of the fastest moving today. On the one hand, the employment data in Australia disappointed, sending the AUD lower across the board. On the other hand, the U.S. stock market correction continues as there is no sign of success in a new round of U.S. stimulus talks.
A quick look at how the AUDUSD reacted during the pandemic so far tells much about who the driver is. It follows the S&P500, the benchmark for the broad market, closely.
The fact that Asian economies cope well with the virus certainly helped. After all, the Australian economy is a big exporter to China and other Asian-Pacific economies. Also, the price of commodities also helped the AUD outperform. However, none of the two had the same impact on the AUDUSD pair as it did the U.S. stock market evolution.
Weak Employment Data in Australia
The unemployment rate climbed again in Australia. It reached 6.9%, rising from 6.8% previously. Also, the labor participation rate dropped, fueling fears that the recent improvements fade away.
From the moment the weak employment report in Australia was released, the AUDUSD pair dropped like a rock. It declined almost a hundred pips in the meantime, an impressive move considering that the FX market is mainly in consolidation mode, given the upcoming U.S. elections.
AUDUSD and S&P500 Correlation
Despite weak employment data, the main driver in the AUDUSD weakness appears to be the U.S. stock market. Lack of progress in the new fiscal stimulus package negotiations made it tough for the stock market to advance at current levels. As such, it puts even further pressure on the AUDUSD pair.
However, it also means that the AUDUSD pair reacts most to the external rather than internal factors. If the recent decline came in the context of higher stock market prices, then the AUDUSD weakness could extend further.
Because that did not happen, bulls will likely step in the moment the stock market reverses. Considering that the series of higher lows remains in place for the stock market, the chances are that we will see the AUDUSD bouncing sooner rather than later.
AUDUSD and S&P500 4h Chart
