Australian Dollar declines ahead of employment data, USD strengthens

by Admin
November 11, 2024

US Dollar Index revisits four-plus-month high buoyed by Republican victory in US election.
Australian employment report anticipates a rise of 25K workers in October, which might influence the RBA’s monetary policy action in December.
The US will release inflation data this week, which might also shake up the pair.

The AUD/USD declined by 0.24% to 0.6570 in Monday’s session as the US Dollar Index (DXY) strengthened to a four-month high, bolstered by the Republican victory in the US election last week. The Australian labor market report, due this week, is expected to show job growth of 25K in October, influencing the Reserve Bank of Australia’s (RBA) decision on monetary policy in December. The Australian Wage Price Index for Q3, also scheduled for release this week, could add upward pressure on inflation.

AUD/USD has declined due to strong US economic data, hawkish US Federal Reserve (Fed) bets, and a broader strengthening of the US Dollar. The RBA’s hawkish stance has not been enough to support the Aussie but might eventually limit its downside.

Daily digest market movers: Declining Australian Dollar leads employment data release

Australian employment report expected to show slower job growth and steady unemployment rate.
Australia’s Q3 wage price index is expected to shed light on labor market conditions and inflation pressures.
In the meantime, the RBA is likely to maintain a hawkish stance, and markets anticipate a 25 bps rate cut in May 2025.
Inflation data from the US this week as well as Retail Sales will give further insights on the US economy.

AUD/USD technical outlook: Pair continues its downward momentum

Amidst bearish technical indicators, the AUD/USD pair’s decline extends today, aligning with the negative outlook. The Relative Strength Index (RSI) remains below 50, indicating selling pressure, while the MACD histogram’s decreasing red bars suggest a lack of momentum. This confluence of signals points to a potential further decline in the near term, with support levels at 0.6570, 0.6550 and 0.6530.

The 200 and 20-day Simple Moving Averages (SMAs) completed a bearish crossover and suggests that the pair could experience further declines in the near future.

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.