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Australian Dollar falls below 0.6500 against US Dollar after Australian employment data

  • The Australian dollar breaks a bullish streak despite the solid increase in new jobs in the country.
  • Employment in Australia increased by 55,000 people in October; The unemployment rate rose to 3.7% as expected.
  • The US Producer Price Index unexpectedly fell 0.5% compared to the expected increase of 0.1%.
  • The China House Price Index fell by 0.38% in October, indicating a worsening situation in the real estate sector.

The Australian Dollar (AUD) moves below the psychological level of 0.6500 with a negative bias on Thursday following the release of Australian employment data. The seasonally adjusted Employment Change reported an increase of 55,000 people in October, compared to the market forecast of 20,000 and 6,700 the previous month. However, most of the jobs were part-time, which somewhat diminished the positive impact of the general headline.

The Australian unemployment rate stood at 3.7% in October, as expected, down from 3.6% previously. However, the AUD/USD pair experienced volatility the previous day following the release of US economic data on Wednesday.

The China House Price Index fell 0.38% in October, compared to the previous decline of 0.1%, indicating a worsening situation in the country’s real estate sector.

Four-hour talks between US President Joe Biden and Chinese President Xi Jinping have resulted in a commitment to stabilize strained bilateral ties and restore some military-to-military communications. This commitment signals an effort to address and improve the complex relationship between both nations, potentially paving the way for better diplomatic and strategic cooperation in the future.

Chinese President Xi Jinping’s comments, reported by Xinhua, underscore hope for a partnership between China and the United States. Key points include a call for mutual respect, peaceful coexistence and cooperation in various fields such as economy, trade, agriculture, climate change and artificial intelligence.

President Xi also expressed the hope that the United States would stop arming Taiwan and support what China calls “peaceful reunification” with Taiwan. Furthermore, he called on the US to lift unilateral sanctions and create a fair and equitable environment for Chinese companies.

The US Producer Price Index (PPI) took an unexpected turn in October, with a decline of 0.5% compared to the expected increase of 0.1%. The annual rate also saw a decrease from 2.2% to 1.3%. These figures coincide with the moderation in inflation indicated by Tuesday’s data from the US Consumer Price Index (CPI).

The report from the US Bureau of Labor Statistics indicated a more significant slowdown in inflation than expected. This unexpected slowdown caused a notable drop in the value of the US Dollar (USD).

Additionally, US retail sales fell 0.1% in October, defying expectations for a steeper 0.3% decline. On Thursday, investors’ attention will focus on weekly jobless claims.

Daily Market Summary: Australian Dollar Weakens Amid Mixed Australian Jobs Data

  • Australia’s wage price index rose 1.3%, as expected, from the previous reading of 0.8%. The year-on-year data showed an increase of 4.0%, above the 3.9% expected.
  • Australia’s Westpac Consumer Confidence fell to 2.6% in November, down from previous growth of 2.9%.
  • RBA Deputy Governor (Economy) Marion Kohler stated that the decline in inflation is expected to be slower than initially anticipated. This is attributed to the persistently high level of domestic demand and strong labor and other cost pressures. Kohler stressed the need for more restrictive policy to address the challenges posed by high inflation.
  • Economists at National Australia Bank (NAB) forecast another 25 basis point rise in February following fourth quarter inflation data. Additionally, NAB believes rate cuts are unlikely to begin until November 2024.
  • China’s industrial production showed growth of 4.6% year-on-year in October, a slight increase from 4.5% previously, contrary to expectations for consistency. Year-on-year retail sales rebounded to 7.6%, exceeding the 7.0% forecast.
  • The US Consumer Price Index (CPI) for October showed lower than expected readings, with the annual rate slowing from 3.7% to 3.2%, falling below the consensus forecast of 3.3%. The monthly CPI was reduced from 0.4% to 0.0%.
  • The US core CPI rose 0.2%, below expectations of 0.3%, and the year-on-year rate fell to 4.0% from 4.1% previously.
  • The monthly US budget report reported a deficit of $67 billion in October, compared to a projected deficit of $65 billion.

Technical Analysis: Australian Dollar remains below 0.6500 level aligned with 38.2% Fibonacci retracement

The Australian Dollar is trading around the 0.6490 level at the start of the European session on Thursday, in line with the immediate resistance at the 0.6500 psychological level. Next resistance levels include the 38.2% Fibonacci retracement at 0.6508 and the 50% retracement at 0.6582. On the downside, the AUD/USD pair could find support at the 14-day EMA at 0.6429, followed by the 0.6400 round level.

AUD/USD daily chart


Australian Dollar FAQ

What factors determine the price of the Australian dollar?

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.

How do decisions by the Reserve Bank of Australia affect the Australian dollar?

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.

How does the health of the Chinese economy influence the Australian dollar?

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.

How does the price of iron ore influence 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.

How does the trade balance influence the Australian dollar?

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

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