Australian Dollar depreciates after mixed Aussie employment data amid recovered US Dollar

by Admin
May 16, 2024

The Australian Dollar loses ground due to dovish sentiment surrounding RBA’s policy stance.
The Australian Unemployment Rate increased to 4.1% in April, from the previous reading of 3.9%.
The US Dollar lost ground after the release of the lower CPI and Retail Sales data on Wednesday.

The Australian Dollar (AUD) snapped its three-day winning streak after the mixed Aussie employment data released on Thursday. Additionally, Australia’s 10-year government bond yield traded lower around 4.2%, after Australia’s Wage Price Index (QoQ) showed a 0.8% increase in the first quarter, falling slightly below the anticipated rise of 0.9%. These figures have supported a dovish sentiment surrounding the Reserve Bank of Australia (RBA) regarding monetary policy, undermining the AUD/USD pair.

The Australian Dollar received support during the early hours on Thursday due to the improved risk appetite following lower-than-expected monthly Consumer Price Index and Retail Sales data in the United States (US) released on Wednesday. This has supported the probability of multiple rate cuts by the Federal Reserve (Fed) in 2024, undermining the US Dollar (USD). The AUD/USD pair has marked a four-month high of 0.6714 on Thursday.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, extends its losses for the consecutive third session. The decline in the US Treasury yields is weakening the Greenback, which could be attributed to the possibility that the Fed may initiate cutting interest rates from September.

Daily Digest Market Movers: Australian Dollar depreciates due to higher Unemployment data

The Australian Bureau of Statistics released the seasonally adjusted Employment Change for April, showing an increase of 38.5K to 14.3 million employed people in Australia. This has surpassed the market expectations of a 23.7K reading, reversing from a small drop in March.
The Australian Unemployment Rate rose to 4.1% in April from the previous reading of 3.9%. This has marked the highest jobless rate since January with the number of unemployed individuals rising by 30.3K to 604.2K.
Sarah Hunter, Chief Economist and Assistant Governor (Economic) at the Reserve Bank of Australia (RBA), delivered a speech at the REIA Centennial Congress on Thursday. During her address, Hunter explored various potential strategies to address the imbalance between housing supply and demand growth. This issue looms large in Australia, with escalating prices, rents, and homelessness posing significant challenges.
US Consumer Price Index (CPI) decelerated to 0.3% month-over-month in April, came in at lower than expected 0.4% reading. While Retail Sales flattened, falling short of the expected increase of 0.4%.
On Tuesday, the Australian Budget for 2024-25 returned to a deficit after recording a surplus of $9.3 billion in 2023-24. The Australian government aims to tackle headline inflation and alleviate the cost of living pressures by allocating billions to reduce energy bills and rent, alongside initiatives to lower income taxes.
The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) increased by 0.5% month-over-month in April, surpassing the forecast of 0.3% and rebounding from March’s contraction of -0.1%. The Core PPI, which excludes volatile food and energy prices, also surged by 0.5% MoM, exceeding projections of 0.2%.
A Reuters report cited Treasurer of Australia Jim Chalmers, expressing his expectation that the current headline inflation rate of 3.6% will return to the Reserve Bank of Australia’s target range of 2-3% by the end of the year. If this scenario unfolds, the central bank will likely consider cutting interest rates earlier than markets had anticipated.
As per a Reuters report, China’s finance ministry plans to start raising 1 trillion Yuan in issuing 20 to 50 years bonds for larger stimulus measures. China is also contemplating a plan for local governments nationwide to purchase millions of unsold homes. These developments have bolstered the Aussie Dollar, given the close trade ties between Australia and China, where any shifts in the Chinese economy catalyze the Australian market.
Federal Reserve Chair Jerome Powell has anticipated a continued decline in inflation on Tuesday. Powell expressed less confidence in the disinflation outlook compared to previous assessments. He also highlighted that Gross Domestic Product (GDP) growth is expected to reach 2% or higher, attributing this positive forecast to the strength of the labor market.

Technical Analysis: Australian Dollar moves below 0.6700

The Australian Dollar trades around 0.6680 on Thursday. The AUD/USD pair lies in an ascending triangle on a daily chart. Moreover, the 14-day Relative Strength Index (RSI) indicates a bullish bias, remaining above the 50 level.

The AUD/USD pair may challenge the upper boundary of the ascending triangle around the four-month high of 0.6714. A breakthrough above this level could lead the pair to explore the area around the major level of 0.6750.

On the downside, the key support appears at the nine-day Exponential Moving Average (EMA) at 0.6627, followed by the ascending triangle’s lower boundary around the level of 0.6610. A break below this level could put pressure on the AUD/USD pair to navigate the region around the major support at 0.6558.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the weakest against the Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.10%	0.09%	0.15%	0.32%	-0.05%	0.22%	0.07%
EUR	-0.10%		-0.02%	0.04%	0.23%	-0.15%	0.12%	-0.04%
GBP	-0.10%	0.01%		0.05%	0.24%	-0.13%	0.12%	-0.03%
CAD	-0.15%	-0.05%	-0.06%		0.18%	-0.18%	0.06%	-0.10%
AUD	-0.34%	-0.23%	-0.24%	-0.18%		-0.37%	-0.11%	-0.27%
JPY	0.07%	0.15%	0.16%	0.21%	0.37%		0.25%	0.10%
NZD	-0.20%	-0.11%	-0.12%	-0.07%	0.12%	-0.26%		-0.16%
CHF	-0.06%	0.04%	0.03%	0.09%	0.27%	-0.10%	0.15%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.