Australian Dollar remains subdued following employment data

by Admin
September 19, 2024

The Australian Dollar edges lower despite the higher-than-expected increase in new jobs created in August.
Australian Employment Change rose by 47.5K in August, surpassing the consensus forecast of 25.0K.
Federal Reserve’s bumper rate cut signals its commitment to safeguarding the labor market and protecting the economy from recession.

The Australian Dollar (AUD) breaks its three-day winning streak against the US Dollar (USD), following the labor market report released on Thursday. Additionally, traders continue to assess the Federal Reserve’s (Fed) 50 basis points (bps) interest rate cut on Wednesday.

Australian Employment Change came in at 47.5K in August, down from 58.2K in July, but well above the consensus forecast of 25.0K. The Unemployment Rate remained steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).

The Federal Open Market Committee (FOMC) lowered the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in over four years. This move signals the Fed’s commitment to safeguarding the labor market and steering the economy away from any signs of recession.

Federal Reserve Chair Jerome Powell stated during a press conference after the monetary policy meeting, “This decision signifies our increased confidence that, with the right adjustment to our policy approach, we can sustain a strong labor market while achieving moderate economic growth and bringing inflation down to a sustainable 2% level.”

Daily Digest Market Movers: Australian Dollar edges lower despite a stronger Employment Change

Fed policymakers updated their quarterly economic forecasts, increasing the median projection for unemployment to 4.4% by the end of 2024, up from the 4% estimate made in June. They also raised their long-term projection for the federal funds rate from 2.8% to 2.9%.
JP Morgan CEO Jamie Dimon stated on Tuesday that whether the Federal Reserve cuts interest rates by 25 or 50 basis points, the impact will be “not earth-shattering.” Dimon emphasized, “They need to do it,” but noted that such moves are relatively minor in the grand scheme of things, as “there’s a real economy” operating beneath the Fed’s rate changes, according to Bloomberg.
US Retail Sales rose by 0.1% month-over-month in August, following a revised 1.1% increase in July, surpassing expectations of a 0.2% decline and indicating resilient consumer spending. Meanwhile, the Retail Sales Control Group increased by 0.3%, slightly below the previous month’s 0.4% rise.
ANZ-Roy Morgan Australian Consumer Confidence climbed 1.8 points, reaching an eight-week high of 84.1. While ANZ notes that the rise was broad-based, confidence remains firmly in pessimistic territory.
Economists at Goldman Sachs and Citi have reduced their 2024 GDP growth forecasts for China to 4.7%, falling short of Beijing’s target of around 5.0%. SocGen describes the situation as a “downward spiral,” while Barclays calls it “from bad to worse” and a “vicious cycle.” Morgan Stanley also cautions that “things could get worse before they get better,” according to a Reuters report.
The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, exceeding the market expectations of 68.0 reading and marking a four-month high. This increase reflects a gradual improvement in consumers’ outlook on the US economy after months of declining economic expectations.
China’s economy weakened in August, with a continued slowdown in industrial activity and declining real estate prices, as Beijing faces growing pressure to increase spending to boost demand. According to Business Standard, this was reported by the National Bureau of Statistics on Saturday.
The Reserve Bank of Australia (RBA) Michele Bullock stated that it is premature to consider rate cuts due to persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical Analysis: Australian Dollar falls to near 0.6750; next support at nine-day EMA

The AUD/USD pair trades near 0.6750 on Thursday. Technical analysis of the daily chart shows that the pair is positioned below the lower boundary of a rising wedge pattern, signaling a potential bearish reversal. However, the 14-day Relative Strength Index (RSI) remains slightly above the 50 mark, indicating that a bullish trend may still be in play.

Regarding the upside, the AUD/USD pair may test a seven-month high of 0.6798, followed by the lower boundary of the rising wedge at 0.6810 level. A return to the rising wedge would reinforce the bullish bias and push the pair toward the upper boundary of the rising wedge at the 0.6840 level.

On the downside, the AUD/USD pair may test the nine-day Exponential Moving Average (EMA) at 0.6733, with the next support at the psychological level of 0.6700. A break below this level could push the pair towards the throwback support zone around 0.6575.

AUD/USD: Daily Chart

Australian Dollar PRICE Today

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

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.36%	0.36%	1.08%	0.25%	0.23%	0.36%	0.54%
EUR	-0.36%		-0.01%	0.72%	-0.11%	-0.11%	-0.00%	0.18%
GBP	-0.36%	0.00%		0.72%	-0.11%	-0.13%	0.00%	0.16%
JPY	-1.08%	-0.72%	-0.72%		-0.80%	-0.83%	-0.74%	-0.55%
CAD	-0.25%	0.11%	0.11%	0.80%		-0.02%	0.11%	0.27%
AUD	-0.23%	0.11%	0.13%	0.83%	0.02%		0.13%	0.28%
NZD	-0.36%	0.00%	-0.00%	0.74%	-0.11%	-0.13%		0.18%
CHF	-0.54%	-0.18%	-0.16%	0.55%	-0.27%	-0.28%	-0.18%

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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

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.