Australian Dollar steady as investors asses labor market figures

AUD/USD shows an increase on Thursday, climbing to 0.6630.
The RBA maintains its hawkish position, potentially balancing the downside.
The rising Australian Unemployment Rate could affect the Aussie's performance.

Patricio Martín FXStreet

The AUD/USD pair experienced an increase of 0.45% during Thursday's session, settling near 0.6630. Despite the rise in Australia's Unemployment Rate in July, strong labor market figures from the country can potentially support the AUD. In addition, the hawkish stance of the Reserve Bank of Australia (RBA) also has a significant impact on the stability of the Aussie.

Relying on the mixed Australian economic outlook and increasing inflation, the RBA's consistent hawkish position has led the markets to predict only 25 bps of easing for 2024.

Daily digest market movers: Aussie sees improvement and shrugs off soft Unemployment figures

Thursday saw an upbeat day for the AUD/USD pair, even in the face of a rising Unemployment Rate from 4.1% to 4.2%, according to the Australian Bureau of Statistics (ABS).
Despite this, the strong performance of the Australian Employment Change and Full-Time Employment results, which both surpassed expectations, helped support the AUD.
Meanwhile, the RBA continues to maintain its hawkish stance, and it all points out that it may be the last among the G10 central banks to implement interest rate cuts.
On the contrary, the Federal Reserve (Fed) seems poised to facilitate easing in the foreseeable future, a disparity that can potentially benefit the AUD/USD pair in the months to come.

AUD/USD technical outlook: AUD/USD traders exhibit resilience, outlook remains hopeful

On the technical side, the AUD/USD pair reflects a degree of volatility with the Relative Strength Index (RSI) wavering around 54, indicating a primarily neutral momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) prints flat green bars, contributing to the neutral to bullish outlook.

Key support levels are detected at 0.6560 and 0.6500, whereas resistance appears near the 0.6640 and 0.6600 regions. The latter represents the 100 and 200-day Simple Moving Average (SMA) convergence, which is acting as strong support in recent sessions.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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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