• Aussie Dollar gains on cooling US job market signs, amid geopolitical tension.
  • Fed's mixed signals reflect caution in policy easing, considering inflation, growth.
  • Australian trade, US job data ahead, crucial for AUD/USD direction amid global economic scrutiny.

The Australian Dollar posted solid gains of more than 0.30% on Thursday against the Greenback after economic data from the United States (US) indicated the labor market is cooling. Federal Reserve’s officials crossed the newswires, giving mixed signals, despite agreeing they would ease policy at some point. The AUD/USD trades at 0.6582 as Friday’s Asian session begins.

Scottish US jobs data, boosted the Aussie’s Dollar

 Risk-sensitive currencies suffered a retracement late in Thursday’s session amidst rising geopolitical risks following Israel’s attack on Iran's embassy in Syria. US Treasury yields posted back-to-back days of losses, while the Greenback is virtually unchanged at 104.20.

US jobs data was soft, as more Americans than expected applied for unemployment benefits. Initial Jobless Claims for the last week rose to 221K, exceeding estimates and previous numbers of 214K and 212K, respectively. Further data revealed the US trade deficit widened in February, missing estimates and January’s print.

Fed officials' remarks on Thursday

Federal Reserve officials were active on Thursday, grabbing some headlines. Firstly, Philadelphia Fed Patrick Harker said that inflation is too high, and was followed by Richmond Fed President Thomas Barkin. He said he’s optimistic about achieving a soft landing, adding that tight policy would slow down the economy.

Moreover, Chicago’s Fed Austan Goolsbee said the Fed’s dual mandate risks are in better balance, adding that keeping restrictive policy for too long could weigh on employment. Recently, Minnesota’s Fed Neil Kashkari commented that he doesn’t see a reason to cut rates with a strong economy while ditching one rate cut, eyeing just two.

Lastly but not least, Cleveland’s Fed Chair Loretta Mester said she thought growth would be above trend this year and added that the rhythm of lowering inflation would be slower than last year.

Aussie’s and US economic dockets

The economic calendar will feature Australia’s Balance of Trade for February, which is expected to print a surplus of A$10.4 billion, below last month’s A$11.027 billion. On the US front, traders brace for March’s Nonfarm Payrolls figures, with the jobs data expected to show the economy added more than 200K jobs to the robust economy. The Unemployment Rate is foreseen to stand pat at 3.9% YoY; while Average Hourly Earnings could rise in monthly figures, but edge lower in the twelve months to March.

 

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.

 

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