The AUD/USD declined by 0.69% to 0.6490 in Wednesday’s session. AUD/USD hovers slightly below 0.6500 after the US inflation data for October. The US headline inflation and core CPI showed no surprises, while focus now shifts to Australia’s October employment data is expected to show a modest increase in jobs added.
The Australian dollar has declined due to the strength of the US dollar, supported by positive economic indicators and increased confidence. Australia’s central bank maintains a neutral stance, signaling a potential rate cut in mid-2025, providing support for the Aussie.
The AUD/USD pair has extended its decline below the 0.6500 level, reaching its lowest point since August. This move is supported by technical indicators, which remain deeply in negative territory. The Relative Strength Index (RSI) is near 30, indicating oversold conditions, while the Moving Average Convergence Divergence (MACD) is below zero, suggesting bearish momentum. These signals suggest that the downtrend may continue in the near term.
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.