Aussie Dollar Lags Post Employment Data

• The Australian dollar remains sluggish after softer than expected employment statistics for August.
• There’s a possibility that AUD might bounce back if the Reserve Bank of Australia (RBA) lowers rates in September, with market expectations at about 20% for such a move.
• The US dollar continues to strengthen following its weekly first unemployment claims report.

On Friday, the Australian Dollar (AUD) traded at a low against the US Dollar (USD), marking the third consecutive session of losses. The AUD/USD pair is under pressure as USD gains follow the release of the initial unemployment claims in the US.

The decline in AUD was further prompted by disappointing employment data, which indicated a seasonally adjusted change of -5.4k jobs in Australia for August, down from a revised 26.5K in July, and well below the consensus estimate of 22K. However, it’s worth noting that the unemployment rate held steady at 4.2% in August.

There’s some support for the Australian dollar from expectations surrounding potential decreases in the RBA’s rates. Currently, the market sees only a 20% chance of a rate cut in September, with the likelihood increasing to 70% by November. The ongoing inflation concerns keep policymakers on edge.

In a related note, US President Donald Trump mentioned he could extend the trade ceasefire with China after a conversation with President Xi Jinping, as reported by Bloomberg on Thursday.

Australian Dollar Moves Amidst US Dollar Strength

• The US Dollar Index (DXY), which gauges the dollar against six major currencies, was around 97.40 at the time of writing.
• The U.S. Department of Labor’s report showed initial unemployment claims dipped to 231K for the week ending September 13th, down from a prior 264K (which was revised from 263K).
• Additionally, the Federal Reserve cut its funding rate by 25 basis points—marking its first reduction of the year—with indications of further cuts ahead.
• Fed Chairman Jerome Powell pointed out growing indications of weakness in the labor market, reasoning for the stabilization measures after previous concerns regarding inflation driven by tariffs.
• According to China’s National Bureau of Statistics (NBS), retail sales growth is expected to be 3.8% in July, compared to a 3.4% rise in August. However, industrial production growth only reached 5.2%, slower than expected.
• The NBS remarked that while economic conditions were generally stable in August, there are challenges affecting company operations due to the external environment.
• Sarah Hunter, an aide to the RBA, indicated on Tuesday that the central bank is nearing its inflation targets but must remain vigilant given the delayed effects of monetary policy on overall economic health.

AUD/USD Pair Sees Weakness Around 0.6600

The AUD/USD pair traded near 0.6610 on Friday. A technical analysis shows that while it remains within an upward channel, the short-term momentum appears weakened as prices drop below the nine-day exponential moving average (EMA).

Initial support for the AUD/USD pair might be found at the 0.6600 mark within the ascending channel. A fall below this level could undermine bullish sentiment and push the pair toward the 50-day EMA around 0.6546.

On the upside, if the AUD/USD manages to breach the nine-day EMA at 0.6623, this could boost short-term momentum and lead the pair towards the 11-month high of 0.6707 reached on September 17, potentially testing the channel’s upper limit of about 0.6720.

AUD/USD: Daily Charts

Australian Dollar FAQ

The Reserve Bank of Australia’s (RBA) interest rates significantly influence the Australian Dollar (AUD). Given its resource-rich economy, iron ore prices also play a crucial role. Additionally, the health of China’s economy affects AUD, considering it is Australia’s largest trading partner.

When it comes to interest rates, the RBA’s decisions impact lending rates across the economy, with the main objective to maintain stable inflation at around 2-3%. Compared to other major central banks, relatively higher interest rates tend to support the AUD.

The interplay with China’s economy remains vital; better performance from there often leads to increased demand for Australian exports, thus elevating AUD’s value.

Iron ore, being Australia’s largest export, directly influences AUD as domestic demand fluctuates with global prices. A positive trade balance strengthens the AUD, while a negative balance has the opposite effect.