Australian Dollar declines as ANZ–Indeed Job Ads drop in June
- Australian Dollar weakens as June’s 0.2% ANZ–Indeed Job Ads decline marked the third monthly fall this year.
- ANZ's Aaron Luk noted job ads fell 28% from 2022 peaks but remain well above pre-pandemic levels.
- AUD could rebound due to a softer USD and lingering expectations of further RBA interest rate hikes.
AUD/USD inches lower after two days of gains, trading around 0.6950 during the Asian hours on Tuesday. The Australian Dollar (AUD) faces downward pressure as weakening economic sentiment amid a cooling labor market signals that high borrowing costs are taking a toll.
Australia’s ANZ–Indeed Job Ads dropped 0.2% month-over-month in June, erasing May's upwardly revised 2.0% gain and marking the third monthly decline this year. Further highlighting the slowdown, the Melbourne Institute Monthly Inflation Gauge fell 0.4% in June following a 0.3% dip in May. This second consecutive monthly decline suggests domestic cost pressures are starting to ease, while traders maintain a cautious stance ahead of crucial June inflation data from China, Australia's primary trading partner.
ANZ Economist Aaron Luk noted that while job advertisements have plummeted roughly 28% from their late-2022 peaks, they still hover above pre-pandemic levels. Luk forecasts further softening in hiring and a gradual rise in unemployment as elevated interest rates, a slowing housing market, and geopolitical tensions weigh on economic activity.
Despite the softer domestic data, the AUD could manage to recapture some ground due to a softer US Dollar (USD) and lingering expectations of further interest rate hikes by the Reserve Bank of Australia (RBA). Investors continue to digest the RBA’s June meeting minutes and Governor Michele Bullock’s hawkish rhetoric, both of which highlighted deep concerns over sticky inflation, excess demand, and tight economic capacity.
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.
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