- AUD/USD falls as three-day winning streak ends despite upbeat Australian labor market data.
- The Australian economy added 53,600 workers in December, while the unemployment rate accelerated.
- Investors await US Initial Jobless Claims and Retail Sales data.
The AUD/USD pair falls after failing to extend a three-day winning streak above the key resistance of 0.6245 in the European session on Thursday. The Australian pair falls even though Australian employment data for December has been stronger than expected.
The Australian Bureau of Statistics (ABS) reported that the economy added 53,600 workers, surprisingly up from 28,200 in November. Economists expected labor demand to remain weak and projected a new addition of 15,000 workers. The unemployment rate rises to 4.0%, as expected, from 3.9% in November.
Typically, signs of robust Australian labor demand are unfavorable to the Reserve Bank of Australia’s (RBA) dovish expectations. Traders are currently pricing in at around 67% the possibility of the RBA reducing its Official Cash Rate by 25 basis points (bps) to 4.10% in February, with a full rate reduction expected in April.
Meanwhile, the US Dollar (USD) wobbles in a tight range with investors awaiting the United States (US) Initial Jobless Claims for the week ending January 10 and Retail Sales data. for December, which will be published at 13:30 GMT.
Investors expect first-time unemployment claims to be higher, at 210,000, compared to 201,000 in the week ending January 3. Retail Sales data, a key measure of consumer spending, is estimated to have grown 0.6%, slower than the 0.7% in November.
The Retail Sales data will influence market expectations about the outlook for the Federal Reserve’s (Fed) monetary policy. Traders currently expect the Fed to deliver a 25bp interest rate cut in June, according to the CME FedWatch tool.
Australian Dollar FAQs
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and the Balance of Trade. Market sentiment, that is, whether investors bet on riskier assets (risk-on) or seek safe havens (risk-off), is also a factor, with the risk-on being positive for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The RBA’s main objective is to maintain a stable inflation rate of 2%-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low ones. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the AUD and the latter being positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy greatly influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases demand for the AUD and drives up its value. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, with $118 billion a year according to 2021 data, with China being its main destination. The iron ore price, therefore, may be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD also rises as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.
The trade balance, which is the difference between what a country earns from its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value solely from the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on purchasing imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
