- The Australian dollar regained its footing on Thursday, supported by strong labor market data.
- US retail sales rose 0.4% in September, beating expectations and benefiting the USD.
- The strong Australian data may not justify a strong turn towards easing by the RBA.
In Thursday’s session, the AUD/USD currency pair saw a gain of 0.40%, reaching 0.6695 mainly due to the positive labor market data reported during the Asian session. However, the Australian Dollar is currently facing downward pressure as the US Dollar strengthens further, mainly due to strong US retail sales figures.
The Australian Dollar could gain more if the data continues to validate the Reserve Bank of Australia’s (RBA) hawkish stance as it would not be open to making multiple cuts in 2024.
Daily movements and market drivers: Australian dollar gains ground thanks to labor market data
- Australian employment rose by 64,100, showing growth slightly above the strong results seen in August, with the majority of gains in full-time jobs.
- Australia’s unemployment rate was adjusted downward to 4.1%, remaining near record lows and significantly below the decade average.
- The RBA’s next decisions will depend on third quarter inflation data, which will be published in two weeks.
- The recent strong performance of the labor market, which has been in an upward trend for several months, could influence the outlook.
- Given the continued strength of the labor market, there may be minimal justification for an interest rate reversal in early November.
AUD/USD Technical Outlook: Bearish traction stabilizes, Australian Dollar must reclaim 100-day SMA
The RSI, which measures buying and selling pressure, is currently at 38 in the negative area. But it is sloping upwards, suggesting that buying pressure is picking up. The MACD, which measures the momentum of a trend, has a flat red histogram, indicating that selling pressure is flat. Overall, the outlook appears mixed with selling pressure taking a pause.
The pair is currently trading around the 0.6696 level. It has been trading within a tight range for the past week, indicating a sideways move. It has not experienced significant spikes up or down. Support levels can be identified at 0.6650, 0.6630, and 0.6600, while resistance levels are at 0.6700 (100-day SMA), 0.6750, and 0.6800.
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.
