- Australian Dollar continues to lose after the release of jobs figures by the Australian Bureau of Statistics.
- Governor Bullock stated to take responsive policy measures if inflation persists.
- US housing market is currently presenting a puzzle with conflicting signals, keeping observers on alert.
The Australian Dollar (AUD) continues the losses against the US Dollar (USD) on mixed employment data released by the Australian Bureau of Statistics on Thursday. The AUD/USD pair halted its two-day winning streak in the previous session amid a speech by Reserve Bank of Australia (RBA) Governor Michele Bullock.
Australia’s employment landscape seems to be experiencing a bit of a twist. In September, the Employment Change dropped more than anticipated, introducing an unexpected element to the equation. On the flip side, the Unemployment Rate took a more positive turn by falling more than expected, deviating from the anticipated consistency.
The US Dollar Index (DXY) rebounds from the recent losses, and this could be attributed to the economic data from the United States (US). The plot thickens with the dovish remarks coming from several Federal Reserve officials, indicating a cautious stance by the central bank. It seems there’s a prevailing sentiment of reluctance when it comes to tightening monetary policy in the current economic climate.
The US housing market seems to be keeping everyone on their toes with mixed signals. On one hand, the Building Permits in September came in better than expected, suggesting a positive scenario. Meanwhile, Housing Starts rebounded, albeit slightly below the market consensus, adding a layer of complexity to the narrative.
The Beige Book’s observation about economic activity showing “little to no change” during September and early October adds a broader perspective.
Daily Digest Market Movers: Australian Dollar extends losses after the release of employment data
- Australia’s central bank expresses heightened concern about the inflation impact stemming from supply shocks. Governor Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
- Australian Weekly ANZ Roy Morgan Consumer Confidence survey, released on Tuesday, indicates a decline in the nation’s Consumer Confidence. The reading fell to 76.4 compared to the previous figure of 80.1. The decline is observed across all sub-indices, reflecting a more cautious or negative sentiment among consumers.
- RBA’s board members acknowledged in October’s meeting minutes that there were significant concerns about upside risks to inflation. This suggests that the board is cautious about potential factors that could lead to an increase in inflation.
- The ongoing conflict in the Middle East introduces an additional layer of complexity to the situation. This geopolitical factor could potentially prompt the RBA to implement a 25 basis points (bps) interest rate hike, reaching 4.35% by the end of the year.
- China’s Gross Domestic Product surpassed expectations, showing a growth of 1.3% compared to the anticipated 1.0%. The annual report for the same quarter revealed an increase of 4.9%, exceeding the expected 4.4%.
- Furthermore, China’s Retail Sales (YoY) demonstrated a rise of 5.5%, surpassing both the previous figure of 4.6% and the expected 4.9%.
- The US Bureau of Economic Analysis (BEA) disclosed that Retail Sales exceeded expectations of 0.3% MoM, which increased to 0.7% in September. While Retail Sales Control Group rose by 0.6% compared to the previous hike of 0.2%.
- This robust performance underscores the resilience of consumers. Subsequently, the Federal Reserve reported that Industrial Production showed improvement by 0.3%, which was expected to remain at 0.0%.
- Richmond Fed President Thomas Barkin noted that current policy is already restrictive. Barkin expressed uncertainty about the upcoming FOMC monetary policy meeting in November. He emphasized that the US central bank cannot depend on longer-term higher bond yields alone to tighten monetary conditions.
- Federal Reserve Bank of Philadelphia President Patrick Harker stated on Monday that the central bank should avoid creating new pressures in the economy by increasing the cost of borrowing. Harker further expressed the view that in the absence of a significant shift in the data, the Fed should maintain interest rates at their current levels.
- The higher US Treasury yields from recent losses could provide support to the US Dollar. The 10-year US Treasury bond yield stands at 4.92%, by the press time.
- Additionally, the USD continues to benefit from safe-haven flows amid rising geopolitical tensions between Israel and Palestine. Safe-haven currencies, including the US Dollar, tend to attract demand during periods of heightened uncertainty and geopolitical risks.
- Thursday seems set to bring a substantial dose of economic insights to the US. Existing Home Sales, the Philly Fed index, and the weekly Jobless Claims report are on the docket, promising a comprehensive look at different facets of the economy. If these indicators continue to signal a robust economy and a labor market that’s holding tight, it could very well keep the US Dollar in demand.
Technical Analysis: Australian Dollar moves below the 0.6350 major level on mixed Australian data
The Australian Dollar trades lower around 0.6320 during the Asian session on Thursday. The 0.6300 emerges as the significant support level, which aligns with the monthly low at 0.6285. On the upside, a crucial resistance is observed at the 21-day Exponential Moving Average (EMA) around the 0.6371 level aligned with the major level of 0.6400. A break above the level could reach the region around the 23.6% Fibonacci retracement level at 0.6429. These technical indicators provide traders with insights into potential resistance zones that could influence the direction of the Aussie Dollar.
AUD/USD: Daily Chart
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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