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Australian Dollar bounces off two-week low against USD after mixed jobs report

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4 months ago

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Australian Dollar bounces off two-week low against USD after mixed jobs report

  • The Australian Dollar gets a minor lift from the mixed Australian employment data on Thursday.
  • The number of employed people rose by 50.2K, while the Unemployment Rate ticks higher to 4.1%. 
  • The emergence of some USD buying keeps a lid on any meaningful upside for the AUD/USD pair.

The Australian Dollar (AUD) has been trending lower over the past week or so amid rising economic headwinds in China. Apart from this, falling copper prices turned out to be another factor denting demand for the resources-linked currency Aussie, though the recent US Dollar (USD) slump helped limit losses for the AUD/USD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dived to a nearly four-month low on Wednesday amid dovish Federal Reserve (Fed) expectations. 

Market participants seem convinced that the US central bank will start cutting interest rates in September and lower borrowing costs again in December. This keeps the US Treasury bond yields depressed near a multi-month low, which, along with the prevalent risk-on environment, continues to undermine the safe-haven buck. Furthermore, the release of monthly employment details from Australia assists the AUD/USD pair in staging a modest recovery from a two-week low retested during the Asian session. 

Daily Digest Market Movers: Australian Dollar struggles to lure buyers after mixed domestic jobs data

  • The official data published by the Australian Bureau of Statistics (ABS) this Thursday showed that the Unemployment Rate rose to 4.1% in June as compared to expectations and the previous figure of 4.0%.
  • A slight disappointment, however, was offset by an unexpected rise in the number of employed people, from 39.7K in May to 50.2K in June, well above consensus estimates pointing to a reading of 20.0K.
  • The mixed data, however, does little to influence expectations about the Reserve Bank of Australia’s next policy move, albeit provides a modest lift to the Australian Dollar and the AUD/USD pair.
  • The US Dollar, on the other hand, attracts some buyers and reverses a part of the previous day’s heavy losses to a nearly four-month trough, which keeps a lid on any meaningful gains for the major.
  • Meanwhile, a September interest rate cut by the Federal Reserve is fully priced in and investors are betting on the possibility of two rate cuts by year-end, which should cap the upside for the USD. 

Technical Analysis: AUD/USD manages to defend ascending trend-line support, ahead of 0.6400 mark

From a technical perspective, the AUD/USD pair bounces off support marked by an upward-sloping trend line.  This, along with another ascending trend line, constitutes the formation of an ascending wedge – a pattern with a bearish tendency. Moreover, oscillators on the said daily chart have just started drifting in the negative territory and suggest that the attempted recovery runs the risk of fizzling out rather quickly. 

Hence, any subsequent move up is more likely to attract some sellers near the mid-0.6700s and remain capped. Some follow-through buying, however, has the potential to lift spot prices back towards the 0.6800 mark, or a multi-month peak touched last week. A sustained strength beyond the latter will negate the near-term negative outlook and pave the way for the resumption of the prior well-established uptrend.

On the flip side, the aforementioned trend-line support, currently pegged near the 0.6700 round figure, could act as immediate support. This is followed by the 50-day Simple Moving Average (SMA), around the 0.6665 region, which if broken decisively will be seen as a fresh trigger for bearish traders. The AUD/USD pair might then accelerate the fall towards the 100-day SMA support near the 0.6600 mark.

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.

 

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