Australian Dollar declines on weak labor data, US Dollar hits yearly high
- AUD/USD declines with the rising US Dollar as Australian employment data disappoints.
- Sluggish job growth and unchanged Unemployment Rate at 4.1% reduce inflation fears in Australia.
- Markets might start to bet on a less aggressive RBA.
The AUD/USD declined by 0.34% to 0.6470 in Thursday's session, extending its decline to a fresh three-month low of 0.6460. The US Dollar is easing after mixed data, while weak Australian employment data has reduced inflationary concerns, which might change the outlook of the Reserve Bank of Australia (RBA).
Lately, the AUD declined against the strengthening USD, driven by positive US economic indicators and increased confidence following Donald Trump’s presidential election. Despite a neutral stance from the RBA, the central bank hinted at a possible rate cut in May 2025. The overall price action indicates that the AUD/USD pair may continue its downtrend, with the DXY reaching new yearly highs, putting pressure on risk-related currencies like the AUD.
Daily digest market movers: Australian Dollar declines due to weak labor data, US data
- Australia's job growth slowed in October, adding 15.9K workers against estimates of 25K, easing inflation concerns.
- Despite the slowdown, the Unemployment Rate remained at 4.1%, suggesting a still-tight labor market.
- The RBA is unlikely to cut interest rates soon as Governor Bullock emphasizes the need to control inflation.
- The US Dollar Index surged to a one-year high near 107.00, driven by Trump's campaign promises of higher import tariffs and lower taxes.
- Investors await Federal Reserve Chair Powell's speech for guidance on interest rate policy.
- As for now, markets anticipate the first 25-basis-point interest rate cut in Australia not before May 2025 but remain confident in a 25 bps cut by the Fed in December.
AUD/USD technical outlook: Pair’s bearish momentum intact, it might start to consolidate
The AUD/USD downtrend remains intact, but oversold conditions in the daily RSI suggest a potential bounce. The indicator has reached deeply into negative territory around 30, a level that often precedes a reversal in momentum. This suggests that the pair may be due for a temporary rebound, although any gains should be viewed as corrective within the broader downtrend.
Support levels lie at 0.6450, 0.6430, and 0.6400, while resistance is encountered at 0.6500, 0.6515, and 0.6550.
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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