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Australian Dollar plunges and approaches August lows

  • On Friday, AUD/USD dropped near its August lows at 0.6350, following the release of the US NFP report for November.
  • The US jobs report showed a much stronger than expected increase in jobs.
  • Rising bets for an early interest rate cut by the Reserve Bank of Australia added bearish pressure on the pair.

The AUD/USD pair experienced significant weakness on Friday, sinking near its August lows at 0.6350 after the release of the US Nonfarm Payrolls (NFP) report for November.

The data showed a much stronger than expected increase in jobs, while rising expectations for an interest rate cut by the Reserve Bank of Australia (RBA) added pressure to the Australian Dollar. Additionally, weaker than expected domestic GDP growth figures further dampened the outlook for AUD/USD.

Daily digest market movers: AUD/USD sinks near August lows after US NFP report

  • US Nonfarm Payrolls for November came in at 227,000, far exceeding the previous 12,000 increase and the expected 200,000 figure.
  • The Unemployment Rate ticked up to 4.2% from 4.1%.
  • Monthly Average Hourly Earnings rose by 0.4%, above the expected 0.3%, steady from the previous 0.4%.
  • University of Michigan Consumer Sentiment for December beat estimates at 74.0, improving from 71.8 previously.
  • Five-year inflation expectations dropped to 3.1%, down from 3.2% in November.
  • Rising bets for an early interest rate cut by the Reserve Bank of Australia contribute to bearish sentiment for AUD/USD.

AUD/USD technical outlook: Bearish outlook with RSI approaching oversold levels

The technical outlook for AUD/USD remains bearish as the pair continues to struggle near its August lows. The Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements, is approaching oversold conditions, signaling severe selling pressure. Similarly, the Moving Average Convergence Divergence (MACD), which tracks the relationship between two exponential moving averages, is also showing bearish dominance. However, these movements might have become overextended, so an upward correction may come.

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.

Author

Patricio Martín

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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