Australian Dollar gives up gains and challengues key support
- Pair slips to 0.6230 on Thursday by nearly 0.30%.
- Early gains fade after strong Australian employment data.
- Diminished tariff risks and risk-on mood cushion the downside.
AUD/USD faced rejection near 0.6250 and fell to 0.6230 in Thursday trading, paring initial gains spurred by Australia’s mixed labor report. A more optimistic market mood helped by reduced anxiety over potential tariff disruptions limits deeper losses. Still, the pair remains under scrutiny as investors monitor the Reserve Bank of Australia’s (RBA) policy direction and the US Dollar’s movements, which trades weak after mid-tier data.
Daily digest market movers: Aussie rotates lower as traders assess fresh local labor data
- The Australian Bureau of Statistics revealed a 53.6K employment increase in December, handily beating the 15K forecast and the prior 28.2K.
- The Unemployment Rate edged up to 4.0%, matching estimates, from 3.9%.
- Markets now see a 67% chance the RBA will slash its Official Cash Rate by 25 basis points to 4.10% in February, with further easing likely by April.
- The US Dollar remains range-bound as investors weigh near-term catalysts, including potential shifts in fiscal and trade policies under President-elect Trump.
- On the data front, Retail Sales for December posted a 0.4% monthly advance, missing the 0.6% forecast and below the prior 0.7% (revised to 0.8%).
- Initial Jobless Claims rose to 217K for the week ending January 10, while the prior 201K reading was revised to 203K.
- The CME FedWatch Tool shows that markets are pricing in that the Federal Reserve will keep rates steady in January with inflation uncertainties tied to the incoming Trump administration.
AUD/USD technical outlook: Pair slips below 0.6250, testing 20-day moving average
The AUD/USD declined 0.30% to 0.6230 on Thursday, retreating from a one-week peak. The Relative Strength Index (RSI) sits near 48, gradually easing in negative territory. The Moving Average Convergence Divergence (MACD) histogram shows rising green bars, hinting at lingering bullish attempts.
Although the pair backed off after briefly trading above its 20-day Simple Moving Average (SMA), the ability to hold near this key threshold could signal emerging support.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
