AUD/USD sinks near August lows on Friday’s US NFP data
- On Friday, AUD/USD dropped near its August lows at 0.6350, following the release of the US NFP report for November.
- The US jobs report showed a much stronger than expected increase in jobs.
- Rising bets for an early interest rate cut by the Reserve Bank of Australia added bearish pressure on the pair.
The AUD/USD pair experienced significant weakness on Friday, sinking near its August lows at 0.6350 after the release of the US Nonfarm Payrolls (NFP) report for November.
The data showed a much stronger than expected increase in jobs, while rising expectations for an interest rate cut by the Reserve Bank of Australia (RBA) added pressure to the Australian Dollar. Additionally, weaker than expected domestic GDP growth figures further dampened the outlook for AUD/USD.
Daily digest market movers: AUD/USD sinks near August lows after US NFP report
- US Nonfarm Payrolls for November came in at 227,000, far exceeding the previous 12,000 increase and the expected 200,000 figure.
- The Unemployment Rate ticked up to 4.2% from 4.1%.
- Monthly Average Hourly Earnings rose by 0.4%, above the expected 0.3%, steady from the previous 0.4%.
- University of Michigan Consumer Sentiment for December beat estimates at 74.0, improving from 71.8 previously.
- Five-year inflation expectations dropped to 3.1%, down from 3.2% in November.
- Rising bets for an early interest rate cut by the Reserve Bank of Australia contribute to bearish sentiment for AUD/USD.
AUD/USD technical outlook: Bearish outlook with RSI approaching oversold levels
The technical outlook for AUD/USD remains bearish as the pair continues to struggle near its August lows. The Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements, is approaching oversold conditions, signaling severe selling pressure. Similarly, the Moving Average Convergence Divergence (MACD), which tracks the relationship between two exponential moving averages, is also showing bearish dominance. However, these movements might have become overextended, so an upward correction may come.
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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