Australian Dollar receives support from moderate employment data
- The Australian Dollar recovers daily losses after the release of the moderate jobs data.
- The commodity-linked AUD faced challenges as reduced demand and a surplus of commodities put pressure on market prices.
- The US Dollar experienced losses following a moderate Consumer Price Index data released on Wednesday.
The Australian Dollar (AUD) recovers its intraday losses following the moderate employment data release on Thursday. However, the Aussie Dollar faced challenges against the US Dollar (USD) due to declining copper and iron ore prices. The drop is exacerbated by worsening credit data from China, which, combined with reduced demand and a surplus of commodities, has put further pressure on the markets. However,
The AUD/USD pair is under downward pressure as investors evaluate the Reserve Bank of Australia's (RBA) monetary policy stance. Despite elevated wage growth in the second quarter, which has kept the RBA's outlook hawkish, RBA Governor Michele Bullock has dismissed any possibility of rate cuts in the next six months. Bullock stressed that the Australian central bank remains vigilant about inflation risks and is prepared to increase rates further if needed.
The US Dollar faces challenges after Wednesday's Consumer Price Index (CPI) data showed a moderate increase in July's annual US inflation rate. Investors are likely debating how much the Federal Reserve (Fed) will cut rates in September. While traders are leaning towards a more modest 25 basis point reduction, with a 60% probability, a 50 basis point cut remains a possibility. According to CME FedWatch, there is a 36% chance of the larger cut occurring in September.
Daily Digest Market Movers: Australian Dollar edges higher after jobs data
- Australian Employment Change is reported at 58.2K for July, surpassing the expected 20.0K and the previous reading of 52.3K. However, the Unemployment Rate increased to 4.2%, exceeding the market expectation of remaining steady at 4.1%. Additionally, Consumer Inflation Expectations for August rose to 4.5%, up from the prior reading of 4.3%.
- Federal Reserve Bank of Chicago President Austan Goolsbee expressed growing concern on Wednesday about the labor market rather than inflation, noting recent improvements in price pressures alongside weak jobs data. Goolsbee added that the extent of rate cuts will be determined by the prevailing economic conditions, per Bloomberg.
- US headline Consumer Price Index (CPI) rose 2.9% year-over-year in July, slightly down from the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, climbed 3.2% year-over-year, a slight decrease from the 3.3% rise in June but aligned with market forecasts.
- On Tuesday, Atlanta Fed President Raphael Bostic stated that recent economic data has increased his confidence that the Fed can achieve its 2% inflation target. However, Bostic indicated that additional evidence is required before he would support a reduction in interest rates, according to Reuters.
- The US Producer Price Index (PPI) rose 2.2% YoY in July from 2.7% in June, falling short of the market expectation of 2.3%. Meanwhile, the Core PPI rose by 2.4% year-on-year in July, against the previous reading of 3.0%. The index fell short of an estimate of 2.7%. The Core PPI remained unchanged.
- Australia's Westpac Consumer Confidence rose by 2.8% in August, swinging from a 1.1% fall in July. Meanwhile, the Wage Price Index remained steady with a 0.8% rise in the second quarter, slightly below the market expectation of a 0.9% increase.
- On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
- On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. This suggests that the Fed may not be prepared to cut rates at their next meeting in September, according to Bloomberg.
Technical Analysis: Australian Dollar falls to near 0.6600
The Australian Dollar trades around 0.6590 on Thursday. The daily chart analysis indicates that the AUD/USD pair tests the lower boundary of an ascending channel, which suggests a weakening bullish bias. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly below the 50 level, confirming the reinforcement of a bearish momentum.
In terms of support, the lower boundary of the ascending channel around 0.6590 serves as an immediate support level for the AUD/USD pair. A break below this level could lead to testing the nine-day Exponential Moving Average (EMA) at 0.6580, followed by the throwback level at 0.6575. If the pair falls below this support region, it could reinforce a bearish outlook, potentially driving it toward the throwback level at 0.6470.
On the upside, the AUD/USD pair might explore the area around the upper boundary of the ascending channel at the 0.6690 level. A breakout above this level could push the pair toward its six-month high of 0.6798, reached on July 11.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.06% | 0.02% | 0.12% | 0.02% | -0.11% | 0.23% | 0.03% | |
| EUR | -0.06% | -0.05% | 0.05% | -0.04% | -0.26% | -0.01% | -0.03% | |
| GBP | -0.02% | 0.05% | 0.11% | 0.01% | -0.20% | 0.05% | 0.12% | |
| JPY | -0.12% | -0.05% | -0.11% | -0.12% | -0.27% | -0.05% | -0.00% | |
| CAD | -0.02% | 0.04% | -0.01% | 0.12% | -0.14% | 0.04% | 0.11% | |
| AUD | 0.11% | 0.26% | 0.20% | 0.27% | 0.14% | 0.24% | 0.31% | |
| NZD | -0.23% | 0.01% | -0.05% | 0.05% | -0.04% | -0.24% | 0.07% | |
| CHF | -0.03% | 0.03% | -0.12% | 0.00% | -0.11% | -0.31% | -0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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