Australian Dollar plunges to fresh multi-year low after upbeat US NFP data

Source Fxstreet
  • AUD tumbles 0.73% to 0.6155 on Friday.
  • Hotter-than-expected NFP bolsters USD demand.
  • Fed’s hawkish tilt and trade tensions between the US and China weigh on Aussie.

The Australian Dollar remains under intense selling pressure following stronger-than-anticipated US Nonfarm Payrolls (NFP) data, hovering near multi-year lows around 0.6150. The Federal Reserve’s (Fed) hawkish shift keeps US Treasury yields elevated, further supporting the Greenback. On the domestic front, early Reserve Bank of Australia (RBA) rate-cut expectations and simmering US-China trade war fears continue to undermine the Aussie.

Daily digest market movers: Stellar US jobs report boosts USD at Aussie’s expense

  • The US Bureau of Labor Statistics reported 256,000 new jobs in December, beating the 160,000 consensus; November’s figure was revised down to 212,000.
  • Unemployment Rate dipped to 4.1%, while Average Hourly Earnings eased from 4% to 3.9% YoY, slightly moderating inflation worries.
  • Markets now anticipate only one Fed rate cut in 2025, pushing the US Dollar Index (DXY) to a high of 109.96 before a minor pullback.
  • China’s economic uncertainty and renewed tariff concerns bolster safe-haven flows into the USD, adding strain to the trade-sensitive Aussie.
  • RBA’s dovish outlook and speculation about an imminent rate reduction add another layer of weakness to the Australian Dollar.

AUD/USD technical outlook: Sellers maintain control as RSI signals oversold conditions

The Relative Strength Index (RSI) sits around 28, indicating oversold territory and continuing to trend lower. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram exhibits rising red bars, reflecting intensifying bearish momentum. With the pair firmly below 0.6150, any recovery attempts could struggle unless market sentiment improves or the Fed’s hawkish stance moderates.

The immediate support is at 0.6150, the multi-year trough just reached; a break below exposes 0.6100 and then 0.6060 as next potential floors. On the upside, initial resistance aligns near 0.6200, followed by 0.6260 — the area that needs to be reclaimed for any meaningful recovery attempt.

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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