The Australian Dollar (AUD) has taken a breather after two days of positive momentum against the US Dollar (USD), as traders exercise caution ahead of the release of US Nonfarm Payrolls (NFP). This crucial data release could provide insights into the scale of a potential rate cut by the Federal Reserve (Fed) later this month.
Support for the Aussie Dollar came from upbeat Trade Balance figures released on Thursday. Furthermore, Reserve Bank of Australia (RBA) Governor Michele Bullock, speaking at “The Anika Foundation” event in Sydney on “The Costs of High Inflation,” emphasized that it is premature to consider rate cuts. The RBA board currently does not foresee the possibility of reducing rates in the near future.
Conversely, the US Dollar continues its decline following dovish remarks from Fed officials. Nonetheless, positive economic indicators may have mitigated the Greenback’s downside. US ISM Services PMI climbed to 51.5 in August from 51.4 in July, surpassing market expectations of 51.1.
Chicago Fed President Austan Goolsbee’s comments on the labor market and inflation trends suggest a rationale for the Fed to implement interest rate cuts soon and gradually over the next year. FXStreet’s FedTracker rated Goolsbee’s stance as neutral, scoring 3.8 on the dovish-to-hawkish scale.
Australian Dollar Depreciates Ahead of US Nonfarm Payrolls
- ADP Employment Change for August showed a rise of 99,000 jobs in the private sector, falling short of the estimated 145,000 and below July’s 111,000. Meanwhile, US Initial Jobless Claims for the week ending August 30 increased to 227,000, below the previous figure of 232,000 but lower than the expected 230,000.
- Australia’s trade surplus expanded to 6,009 million MoM in July, surpassing the anticipated 5,150 million and the previous 5,589 million.
- Atlanta Federal Reserve President Raphael Bostic remarked on the Fed’s policy stance, emphasizing the need to avoid prolonged restriction. FXStreet’s FedTracker rated Bostic’s comments as neutral, scoring 4.6.
- US JOLTS Job Openings dropped to 7.673 million in July, down from 7.910 million in June, marking the lowest level since January 2021 and missing expectations of 8.10 million.
- Bank of America revised China’s economic growth forecast, lowering the 2024 projection to 4.8% from 5.0%. The 2025 forecast was adjusted to 4.5%, while the 2026 outlook remains unchanged at 4.5%.
- Australia’s Gross Domestic Product (GDP) for Q2 posted a 0.2% growth, up from the previous quarter’s 0.1% but below the expected 0.3%.
- The Judo Bank Composite PMI for August rose to 51.7, signaling the fastest expansion in three months. The Services PMI reached 52.5 in August, marking the seventh consecutive month of growth in the services sector.
- US ISM Manufacturing PMI inched up to 47.2 in August from 46.8 in July, falling short of market expectations of 47.5, marking the 21st contraction in US factory activity over the past 22 months.
Australian Dollar Technical Analysis: Holding Above 50-day EMA near 0.6700
On the daily chart, the AUD/USD pair is currently trading around 0.6740. While positioned below the nine-day Exponential Moving Average (EMA), indicating a short-term bearish trend, the 14-day Relative Strength Index (RSI) slightly above 50 suggests a potential bullish bias. A drop below the 50 RSI level could confirm a shift towards bearish sentiment.
Immediate support for the AUD/USD pair lies around the 50-day EMA at 0.6716. A breach below this level could reinforce bearish momentum, with further downside targeting the throwback level near 0.6575 and potentially reaching the lower support around 0.6470.
On the upside, breaking above the nine-day EMA at 0.6743 could pave the way for a retest of the seven-month high at 0.6798.
AUD/USD: Daily Chart
Australian Dollar FAQs
Interest rates set by the Reserve Bank of Australia (RBA) and the price of Australia’s main export, Iron Ore, are key factors influencing the Australian Dollar. The health of the Chinese economy, inflation in Australia, growth rate, and Trade Balance also play significant roles. Market sentiment, whether risk-on or risk-off, can impact the AUD’s performance.
The RBA’s interest rate decisions affect the AUD by influencing overall interest rates in the economy. Maintaining stable inflation is a primary goal, with higher rates supporting the AUD and vice versa. Quantitative easing and tightening are tools the RBA uses to manage credit conditions, impacting the AUD accordingly.
As China is Australia’s largest trading partner, the Chinese economy’s health directly affects the AUD. Strong Chinese economic performance boosts demand for Australian exports, lifting the AUD’s value. Conversely, weak Chinese growth can weigh on the AUD.
Iron Ore, Australia’s top export, plays a crucial role in determining the AUD’s value. Rising Iron Ore prices typically lead to a stronger AUD due to increased demand for the currency. Positive or negative changes in Iron Ore prices can influence the AUD’s performance.
The Trade Balance, reflecting a country’s exports versus imports, impacts the AUD’s value. A positive Trade Balance strengthens the AUD as foreign demand for Australian exports increases, while a negative balance can weaken the currency.