AUD/USD fails to continue winning streak despite strong Aussie Employment data
- AUD/USD falls as three-day winning streak concludes despite upbeat Aussie labor market data.
- The Aussie economy added 53.6K workers in December, while the jobless rate accelerated.
- Investors await the US Initial Jobless Claims and the Retail Sales data.
The AUD/USD pair declines after failing to extend a three-day winning streak above the key resistance of 0.6245 in Thursday’s European session. The Aussie pair falls even though the Australian employment data for December has come in stronger than expected.
The Australian Bureau of Statistics (ABS) reported that the economy added 53.6K workers, surprisingly higher than 28.2K in November. Economists expected the labor demand to have remained weak and projected a fresh addition of 15K workers. The Unemployment Rate rises to 4.0%, as expected, from 3.9% in November.
Typically, signs of robust Australian labor demand remain unfavorable for the Reserve Bank of Australia’s (RBA) dovish bets. Currently, traders roughly price in a 67% chance that the RBA will lower its Official Cash Rate by 25 basis points (bps) to 4.10% in February, with a full rate cut expected by April.
Meanwhile, the US Dollar (USD) wobbles in a tight range with investors awaiting the United States (US) Initial Jobless Claims for the week ending January 10 and the Retail Sales data for December, which will be published at 13:30 GMT.
Investors expect individuals claiming jobless benefits for the first time were higher at 210K, compared to 201K in the week ending January 03. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.6%, slower than 0.7% in November.
The Retail Sales data will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. Currently, traders expect the Fed to deliver 25-bps interest rate reduction in June, according to the CME FedWatch tool.
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.