- AUD/USD climbs over 0.60% as US unemployment claims hit 231K, exceeding expectations, weakening the dollar.
- Higher jobless claims contribute to falling US Treasury yields.
- RBA holds rates; Governor Bullock's comments open to future Cash Rate adjustments.
The Australian Dollar rallied against the US Dollar on Thursday, printed gains of more than 0.60%, due to the Greenback remained offered following a softer than expected US jobs report. The AUD/USD trades back above the 0.6600 threshold and gains 0.04% as Friday’s Asian session begins.
AUD/USD gains as softer US labor data and falling Treasury yields dampen Greenback’s appeal.
US economic data was the main reason behind the poor performance of the American Dollar. The US Bureau of Labor Statistics (BLS) revealed that people filling out forms for unemployment benefits exceeded estimates. Initial Jobless Claims for the week ending May 4 rose to 231K, exceeding the estimates of 210K, and showing an increase from the previous week's figure of 209K.
Following the data, US Treasury bond yields dropped, with the 10-year benchmark note rate down almost four basis points to 4.459%. The US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, dropped 0.25% and is at 105.23 at the time of writing.
It should be said that the latest round of US jobs data revealed in May showed signs the labor market is cooling. According to ANZ Analysts, “The data follow further falls in job openings at the end of March and the April nonfarm payrolls showing the softest growth for seven months. Not too much can be read into one round of data, but the incoming data will be watched very closely for further evidence that US labour market momentum may be slowing.”
In the meantime, San Francisco Fed President Mary Daly commented that lowering inflation to the Fed’s target would be a bumpy ride. Daly noted that the last three months of data leave policymakers uncertain about the future of inflation.
On the Aussie’s front, the Reserve Bank of Australia (RBA) 's latest monetary policy decision to hold rates unchanged sponsored a leg-down in the AUD/USD despite “not ruling anything ir or our” regarding monetary policy. However, Thursday’s price action lifted the pair to a new three-day high at 0.6621.
RBA’s Governor Michele Bullock maintained a balanced tone at the press conference. Regarding rates, she mentioned that "we might have to raise, we might not," indicating the board's contemplation of rate hikes at this meeting.
AUD/USD Price Analysis: Technical outlook
From a daily chart perspective, the pair is neutral to upward biased, despite buyers reclaiming key resistance levels like the 0.6600 figure. Nevertheless, it remains shy of testing the latest cycle high seen at 0.6667, the March 8 high, which could exacerbate a rally toward 0.6700. Once cleared, the next resistance level would be the December 28 high at 0.6871.
On the other hand, if sellers push prices below the 100-day moving average (DMA) at 0.6577, subsequent losses are awaited. The next demand level would be the 50-DMA at 0.6535, followed by the 200-DMA at 0.6515.
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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