AUD/JPY extends the decline to near 97.50 on downbeat Australian employment data
- AUD/JPY softens to near 97.65 in Thursday’s Asian session.
- Australia’s Unemployment Rate steadies at 4.2% in August, as expected.
- The BoJ is expected to keep interest rates steady later on Friday.
The AUD/JPY cross extends its downside to around 97.65 during the Asian trading hours on Thursday. The Australian Dollar (AUD) weakens against the Japanese Yen (JPY) after the release of the Australian employment report for August. All eyes will be on the Bank of Japan (BoJ) interest rate decision later on Friday. Also, Japan’s National Consumer Price Index (CPI) data will be published.
The Australian Bureau of Statistics (ABS) on Thursday showed that the Unemployment Rate in Australia steadied at 4.2% in August. This figure came in line with the market consensus. Meanwhile, the Employment Change came in at -5.4K in August versus 26.5K in July (revised from 24.5K), worse than the forecast of 22K. The participation rate decreased to 66.8% in August, compared to the previous reading and expectation of 67.0%. The Aussie attracts some sellers in an immediate reaction to the downbeat employment report.
The BoJ is expected to leave the benchmark interest rate unchanged at 0.5% amid domestic challenges and global risks. Investors anticipate the Japanese central bank will hike interest rates by the end of this year. This, in turn, could provide some support to the JPY.
Traders will take more cues from the BoJ Governor Kazuo Ueda's speech after the policy meeting for hints about the timing of the BoJ's rate hikes. However, if the BoJ policymaker delivers a surprise dovish remark, this could drag the JPY lower and cap the downside for the cross.
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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