Australian Dollar recovers on strong labor data
- The Aussie regained its balance on Thursday, supported by strong labor market data.
- US Retail Sales rose by 0.4% in September, surpassing expectations that benefit the USD.
- Strong Australian data might not justify a strong pivot toward easing by the RBA.
In Thursday's session, the AUD/USD currency pair experienced a gain of 0.40%, reaching 0.6695 mainly due to 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 Aussie might gain further if data continue to validate the Reserve Bank of Australia’s (RBA) hawkish stance as it wouldn’t be open to deliver multiple cuts in 2024.
Daily digest market movers: Australian Dollar gains on labor market data
- Australian Employment increased by 64.1K, showing slightly higher growth than the strong results seen in August with most gains in full-time jobs.
- The Australian Unemployment rate was adjusted downward to 4.1%, staying close to historic lows and significantly below the decade’s average.
- The RBA's upcoming decisions will hinge on the third-quarter inflation data, set to be released in two weeks.
- The recent strong performance of the labor market, which has been on an upward trend for several months, could influence the outlook.
- Given the ongoing labor market strength, there may be minimal justification for an interest rate reversal in early November.
AUD/USD technical outlook: Bearish traction stabilizes, Aussie must recover 100-day SMA
The RSI, which measures buying and selling pressure, is currently at 38 in the negative area. But it has a rising slope, suggesting that buying pressure is recovering. The MACD, which measures the momentum of a trend, has a flat red histogram, indicating that selling pressure is flat. Overall, the outlook seems to be mixed with selling pressure taking a breather.
The pair is currently trading around the 0.6696 level. It has been trading within a narrow range over the past week, indicating sideways movement. It has not experienced any significant upward or downward spikes. 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.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for 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 main goal of the RBA 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. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.