Australian Dollar softenes ahead of employment data

AUD/USD fell on Wednesday, reaching five-week lows below 0.6700.
Markets await key employment figures from Australia in Thursday’s session.
A stronger USD, worries from the Chinese economic situation and falling metal prices are pushing down the Aussie.

Patricio Martín FXStreet

The AUD/USD continued its downtrend on Wednesday, declining by 0.60% to 0.6662, marking a five-week low. The pair breached the crucial 0.6700 support level, potentially leading to a test of the 200-day SMA at 0.6625. The outcome of local employment figures to be released on Thursday will also set the pace of the Aussie’s dynamics.

Despite a mixed economic outlook for Australia, the Reserve Bank of Australia's (RBA) focus on combating high inflation has tempered market expectations. As a result, the markets now anticipate only a modest 0.25% interest rate cut in 2024. If employment data comes in weak, markets might place bets on another cut.

Daily digest market movers: Australian Dollar declines after breaking key support, employment figures ahead

AUD/USD breaks below key support at 0.6700 on USD's recovery as traders doubt China's stimulus efforts.
China's latest press conference raises uncertainty over stimulus plan's scope and impact.
Markets only anticipate 50% chance of RBA rate cut by year-end, potentially aiding AUDUSD recovery.
On Thursday, investors will eye Employment Change and Participation rate figures from September from Australia, which are expected to show weakness in the labor market.

AUD/USD technical outlook: Bearish momentum rising, support at 0.6700 gone

The AUD/USD pair is currently trading in a bearish trend. The Relative Strength Index (RSI) is in the oversold area, suggesting that selling pressure is intense but soon to potentially pause for consolidation. The Moving Average Convergence Divergence (MACD) is also rising, indicating that the overall outlook is bearish.

Support levels include 0.6660, 0.6650 and 0.6630, while resistance levels lie at 0.6700, 0.6730and 0.6750.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element in assessing 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 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 because low labor supply and high demand leads to higher wages.

Why is wage growth important?

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.

How much do central banks care about employment?

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 their significance as a gauge of the health of the economy and their direct relationship to inflation.

Author

Patricio Martín

FXStreet

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

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