- AUD/USD falls and struggles to gain ground against the USD.
- US Nonfarm Payrolls disappoint with 142,000 new jobs added, below estimate of 160,000.
- The RBA’s hawkish stance suggests no rate cuts are imminent, which could support the AUD.
The AUD/USD fell 0.85% in Friday’s session, now hovering around the 0.6700 level following the release of the US Non-Farm Payrolls (NFP) report for August. However, the Reserve Bank of Australia’s (RBA) hawkish stance suggests that rate cuts are unlikely to be imminent, which could limit the Australian Dollar’s downside.
The economic outlook for Australia is uncertain, and the Reserve Bank of Australia’s aggressive stance to combat rising inflation has led to market expectations of just a 0.25% rate cut in 2024.
Daily Market Wrap: Australian Dollar Falls Against US Dollar Following Mixed US Jobs Data
- The US NFP report shows weaker than expected job growth, with 142,000 new payrolls added versus expectations of 160,000.
- The unemployment rate fell to 4.2% as expected, from 4.3% previously.
- Following the data, the probability that the Fed will begin cutting interest rates this month remained stable, with a 45% chance of a 50 basis point reduction to 4.75%-5.00%.
- On the other hand, RBA Governor Bullock’s hawkish stance reinforces the belief that interest rates will remain unchanged in the near term.
- As monetary policy divergences between the Fed and RBA become increasingly clear, the Australian dollar’s downside is limited.
AUD/USD Technical Outlook: Bearish Momentum Tests Support at 0.6650
The pair has been in a downtrend since early September and is now testing the key support level of 0.6670. A break below this level could lead to further losses in the coming days.
The Relative Strength Index (RSI) is currently in the negative zone and is sloping sharply downwards, indicating that the bears are in control of the market. The MACD is also bearish, confirming increasing selling pressure.
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). Since 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 Trade Balance. Market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, with 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 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 is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, worth $118 billion per year as of 2021 data, with China being its main destination. The price of iron ore can therefore be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD rises as well, as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to lead to a higher probability 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 because of the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on buying 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.
