AUD/USD consolidates around 0.6550 as focus shifts to US NFP


  • AUD/USD turns sideways after refreshing an 11-week low near 0.6540 ahead of US NFP data.
  • The uncertainty over the US presidential elections has weakened the appeal of risk-sensitive assets.
  • Inflationary pressures in Australia decelerated sharply in the third quarter of the year.

The AUD/USD pair trades sideways above more than 11-week low of 0.6540 in Thursday’s European session. The Aussie asset consolidates as investors await United States (US) Nonfarm Payrolls (NFP) data for October, which will influence market expectations for the Federal Reserve (Fed) interest rate path in the remainder of the year.

Market sentiment remains risk-averse as investors turn cautious ahead of US presidential elections on November 5. While national polls have indicated tough competition between former President Donald Trump and current Vice President Kamala Harris, traders seem to be pricing in Trump’s victory. Trump is expected to implement protectionist policies, which will have a significant impact on nations that are leading trading partners of the US.

S&P500 futures have posted significant losses in the European session, exhibiting the weak risk appetite of investors. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops slightly below 104.00.

The US NFP report is expected to show that the economy added 115K jobs lower than 254K in September, with the Unemployment Rate remaining steady at 4.1% on Friday. Investors will also focus on the US ISM Manufacturing PMI for October, which is expected to have contracted again but at a slower pace to 47.6 from 47.2 in September.

In the Aussie region, slower-than-expected inflation growth in the third quarter of the year has pushed back market expectations for the Reserve Bank of Australia (RBA) keeping its Official Cash Rate (OCR) at its current levels for a longer period. Year-on-year Consumer Price Index (CPI) decelerated at a faster-than-expected pace to 2.8% from 3.8% in the previous quarter of the year. Annual Trimmed Mean CPI, which is RBA’s preferred inflation gauge, grew slower by 3.5%, as expected.

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.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD struggles near multi-month low below 0.6500 after Aussie jobs report

AUD/USD struggles near multi-month low below 0.6500 after Aussie jobs report

AUD/USD hangs near its lowest level since August 6 below the 0.6500 level following the release of rather unimpressive Australian employment details for October. Meanwhile, RBA Governor Michele Bullock said earlier on that interest rates were restrictive enough and will not rise any further. 

AUD/USD News
USD/JPY briefly pops 156.00 on firmer US Dollar

USD/JPY briefly pops 156.00 on firmer US Dollar

USD/JPY holds firm near its highest level since July 24, having briefly popped 156.00 in the Asian session on Thursday. The continuation of the Trump trade lifts the US Dollar to yearly highs while Japan's stimulus plans fail to inspire the Yen. Traders watch out for any Japanese internvetion risks.  

USD/JPY News
Gold downside appears unabated, with eyes on Fed Chair Powell

Gold downside appears unabated, with eyes on Fed Chair Powell

Gold price is sitting at its lowest level in two months near $2,560 early Thursday, as buyers eagerly await US Federal Reserve Jerome Powell’s speech for a brief respite.

Gold News
XRP's open interest drops over 10% amid struggles near $0.7440 resistance

XRP's open interest drops over 10% amid struggles near $0.7440 resistance

Ripple's XRP is trading near $0.6900, down nearly 3% on Wednesday, as declining open interest could extend its price correction. However, other on-chain metrics point to a long-term bullish setup.

Read more
Trump vs CPI

Trump vs CPI

US CPI for October was exactly in line with expectations. The headline rate of CPI rose to 2.6% YoY from 2.4% YoY in September. The core rate remained steady at 3.3%. The detail of the report shows that the shelter index rose by 0.4% on the month, which accounted for 50% of the increase in all items on a monthly basis. 

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures