Australian Dollar gives back early gains, skids below 0.7050 against US Dollar

Australian Dollar pares early gains driven by steady job market data for January.
The Australian Unemployment Rate remains steady at 4.1%, lower than estimates of 4.2%.
The FOMC Minutes showed that there is no rush for interest rate cuts.

Sagar Dua FXStreet

The Australian Dollar (AUD) surrenders a majority of its early gains and flattens to near 0.7045 against the US Dollar (USD) during the European trading session on Thursday. The Aussie pair attracted significant bids earlier in the day after the release of the Australian labor market data for January.

The data showed that job conditions were mixed as the jobless rate remained lower, while fresh labor additions were modest. The Unemployment Rate came in steady at 4.1% against estimates of 4.2%. Fresh jobs created by the Australian economy were 17.8K, lower than estimates of 20K and the prior reading of 68.5K, revised higher from 65.2K.

Hawkish Reserve Bank of Australia (RBA) speculation is expected to remain firm, following steady job market conditions. According to a report from Reuters, traders have fully priced in a hike in the Official Cash Rate (OCR) by 25 basis points (bps) to 4.1% by the August meeting.

In the policy meeting earlier this month, the RBA raised its OCR by 25 bps to 3.855 and kept the door open for further monetary tightening, citing upside inflation risks.

Meanwhile, the US Dollar (USD) trades broadly firm as the Federal Open Market Committee (FOMC) Minutes of the January policy meeting showed on Wednesday that officials are not in a hurry to cut interest rates as price pressures have been persistently above the central bank’s 2% target.

During the day, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near a fresh weekly high around 97.80 posted on Wednesday.

Globally, renewed risks of United States (US) military action in Iran have improved the safe-haven appeal of the US Dollar.

Economic Indicator

Unemployment Rate s.a.

The Unemployment Rate, released by the Australian Bureau of Statistics, is the number of unemployed workers divided by the total civilian labor force, expressed as a percentage. If the rate increases, it indicates a lack of expansion within the Australian labor market and a weakness within the Australian economy. A decrease in the figure is seen as bullish for the Australian Dollar (AUD), while an increase is seen as bearish.

Why it matters to traders?

The Australian Bureau of Statistics (ABS) publishes an overview of trends in the Australian labour market, with unemployment rate a closely watched indicator. It is released about 15 days after the month end and throws light on the overall economic conditions, as it is highly correlated to consumer spending and inflation. Despite the lagging nature of the indicator, it affects the Reserve Bank of Australia’s (RBA) interest rate decisions, in turn, moving the Australian dollar. Upbeat figure tends to be AUD positive.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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