- AUD/USD marks a new three-month low near 0.6460 as the US Dollar continues to rise.
- Trump’s complete victory will allow him to implement policies without interruptions.
- RBA Bullock was in favor of keeping interest rates at their current levels as inflation is not yet under control.
The AUD/USD pair extends its downward trajectory near 0.6460 in European trading hours on Thursday. The Australian pair marks a new three-month low due to multiple headwinds, weak Australian employment data for October and the upbeat US Dollar (USD).
Australian labor market data showed the economy added 15.9K new workers, down from estimates of 25K and the previous release of 61.3K. A slowdown in labor demand eased fears that price pressures would remain persistent for a longer period. The unemployment rate remains at 4.1%, as expected.
Although some signs of slowing job growth are visible, the Reserve Bank of Australia (RBA) is less likely to cut interest rates anytime soon, with Governor Michelle Bullock commenting on Wednesday that interest rates should remain at their current levels until the central bank controls inflation.
Meanwhile, the US dollar adds further gains as President-elect Donald Trump secures both chambers of the United States (US), the Senate and the House of Representatives, a scenario that will allow Republicans to implement policies smoothly. The Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, is rising vertically near the key resistance of 107.00, the highest level seen in over a year. On the campaign trail, Trump promised to raise import tariffs and reduce taxes.
Looking ahead, investors will focus on Federal Reserve (Fed) Chairman Jerome Powell’s speech for fresh guidance on interest rates. According to the CME FedWatch tool, the central bank is expected to cut interest rates by 25 basis points (bps) to 4.25%-4.50% at the December meeting.
The 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.
