Australian Dollar consolidates post snapping a winning streak, US NFP eyed

The Australian Dollar (AUD) snaps a two-day winning streak against the US Dollar (USD) on Friday. The Aussie pair gained support from the correction in the US Dollar (USD) following a decline in US Treasury yields.

Australia’s report for October 2023, Financial Stability Review (FSR) from the Reserve Bank of Australia (RBA) indicates elevated global financial stability risks due to challenging macroeconomic conditions.

The rise in inflation and interest rates since 2021 has strained household and business finances not only in Australia but also globally. Prolonged high levels of inflation and interest rates pose a risk of significant credit quality deterioration, potentially leading lenders to reduce credit provision.

However, the report mentioned that Australian banks remain well-positioned to continue supplying credit to the economy despite elevated global and domestic risks.

Moreover, a November meeting between President Biden and Chinese leader Xi Jinping in San Francisco is in the works, signaling an effort to stabilize relations between the world's top two economies.

This potential summit follows their last meeting in Bali, Indonesia, in November last year, where both leaders stressed the importance of face-to-face diplomacy and expressed hope for the reconstruction of US-China relations.

The US Dollar Index (DXY) retraces the two-day losing streak. The index continued to correct from an 11-month high due to a decline in the US Treasury yields. However, the unemployment data on Thursday showed a tight labor market in the United States (US). The upcoming US Nonfarm Payrolls and Average Hourly Earnings will be eyed on Friday for further confirmation.

Daily Digest Market Movers: Australian Dollar trades lower due to the rebound in US Dollar

• RBA’s FSR report affirms that Australian banks are in a robust position to maintain credit supply to the economy, even amid heightened global and domestic risks.
• Australia's Trade Balance (MoM) showed improvement in August, reaching 9,640 million, surpassing market expectations of 8,725 million. July's reading stood at 8,039 million.
• Australia’s central bank could go for a rate hike, with expectations pointing toward a peak of 4.35% by the end of the year. This projection aligns with the persistent elevation of inflation above the target.
• Michele Bullock, the newly appointed governor of the RBA, in her inaugural monetary policy statement following the interest rate decision, emphasized the need for additional tightening of monetary policy.
• Bullock noted that recent data align with the return of inflation to the target range. While inflation in Australia has peaked, it remains elevated and is expected to persist for a while.
• US Initial Jobless Claims for the week ending September 29, increased to 207K from the previous reading of 205K, beating the market expectation of 210K. This suggests that labor market conditions continue to be tight.
• US Challenger Job Cuts have come down significantly from the previous figure of 75.151K to 47.457K in September.
• The 10-year US Treasury yield stands above 4.70%, close to the highest level since 2007.
• Traders await the upcoming US Nonfarm Payrolls and Average Hourly Earnings on Friday. Upbeat numbers could trigger more USD gains and increase volatility in the bond market.

Technical Analysis: Australian Dollar holds ground above 0.6350, 21-day EMA emerges as the immediate barrier

Australian Dollar hovers around 0.6360 against the US Dollar on Friday. The 21-day Exponential Moving Average (EMA) appears to be a key barrier lined up with the 0.6400 psychological level. A firm break above the latter could open the doors for the pair to explore levels around the 23.6% Fibonacci retracement at 0.6429 level. On the downside, the major level at 0.6300 emerges as the immediate support, followed by November's low at 0.6272.

AUD/USD: Daily Chart