- The Australian dollar rose after new job creation rose more than expected in August.
- Australian employment change increased by 47.5K in August, beating the consensus forecast of 25.0K.
- The Federal Reserve's significant interest rate cuts demonstrate its determination to protect the labor market and protect the economy from recession.
The Australian Dollar (AUD) has recovered from a day's losses and continues to rise against the US Dollar (USD) following the release of the labor market report on Thursday. Additionally, traders continue to evaluate the Federal Reserve's (Fed) 50 basis points (bps) interest rate cut on Wednesday. The Monetary Policy Committee (MPC) of the People's Bank of China (PBoC) is scheduled to hold its quarterly meeting on Friday to review the Lending Prime Rate (LPR).
Australia's employment change in August was 47.5K, down from 58.2K in July but well above the consensus forecast of 25.0K. Data released by the Australian Bureau of Statistics (ABS) showed the unemployment rate remained stable at 4.2% in August, in line with expectations and the previous month's figure.
The Federal Open Market Committee (FOMC) lowered the federal funds rate to the 4.75% to 5.0% range, the first rate cut by the Fed in four years. The move signals the Fed's determination to protect the labor market and steer the economy away from signs of a recession.
“Today's decision reflects our growing confidence that, by appropriately adjusting our policy approach, we can achieve moderate economic growth and lower inflation to a sustainable 2 percent level while maintaining a strong labor market,” Federal Reserve Chairman Jerome Powell said at a press conference after the central bank's monetary policy meeting.
Daily Digest Market Trends: Australian dollar strengthens on employment growth
- Federal Reserve policymakers updated their quarterly economic forecasts, raising their median forecast for the unemployment rate at the end of 2024 to 4.4%, up from 4% in June. They also raised their longer-term forecast for the federal funds rate to 2.9%, up from 2.8%.
- JPMorgan CEO Jamie Dimon said on Tuesday that whether the Federal Reserve cuts interest rates by 25 basis points or 50 basis points, the impact “won't be that significant.” According to Bloomberg, Dimon stressed that “the Fed needs to cut interest rates,” but noted that such moves would be relatively small in the grand scheme of things because “the real economy is running” beneath the Fed's rate changes.
- U.S. retail sales rose 0.1% month-on-month in August following a revised 1.1% increase in July, beating expectations of a 0.2% decline and signaling strength in consumer spending. Meanwhile, retail sales control group rose 0.3%, slightly down from the previous month's 0.4% increase.
- The ANZ-Roy Morgan Australian Consumer Confidence Index rose 1.8 points to 84.1, its highest level in eight weeks. While ANZ noted the gains were broad-based, confidence remains in pessimistic territory.
- Economists at Goldman Sachs and Citi have cut their forecasts for China's GDP growth in 2024 to 4.7%, below Beijing's target of about 5.0%. Société Générale described the situation as a “downward spiral,” while Barclays called it “only getting worse” and a “vicious circle.” Morgan Stanley also warned that “things may get worse before they get better,” according to a Reuters report.
- The University of Michigan Consumer Sentiment Index rose to 69.0 in September, beating market expectations of 68.0 and the highest level in four months. The increase reflects a gradually improving outlook for consumers' U.S. economy after months of declining economic expectations.
- China's economy weakened in August as industrial activity continued to slow and property prices fell, increasing pressure on Beijing to increase spending to stimulate demand, the National Bureau of Statistics reported on Saturday, according to the Business Standard.
- Reserve Bank of Australia Governor Michelle Bullock said it was too early to consider cutting interest rates because inflation remains elevated, and RBA Deputy Governor Sarah Hunter noted that while the labour market remains tight, wage growth appears to have peaked and is expected to slow further.
Technical reasons why: The Australian Dollar is trading close to 0.6750 with the next support at the 9-day EMA.
On Thursday, the AUD/USD pair is trading near 0.6750. Technical analysis on the daily chart shows that the pair has fallen below the lower limit of an ascending wedge pattern, signaling a bearish reversal. However, the 14-day Relative Strength Index (RSI) is just above 50, indicating a break below the 9-day Exponential Moving Average (EMA) is required to confirm a reversal.
On the upside, the AUD/USD pair is likely to test the seven-month high at 0.6798 and then the lower boundary of the ascending wedge at 0.6810 levels. A return to the ascending wedge will strengthen the bullish bias and push the pair towards the upper boundary of the ascending wedge at 0.6840 levels.
On the downside, the AUD/USD pair is likely to test the 9-day exponential moving average (EMA) at 0.6733 and the next support is at the psychological level of 0.6700. A break below the latter could see the pair heading towards the throwback support zone around 0.6575.
AUD/USD: Daily Chart
Today's price of the Australian dollar
The table below shows the percentage movement of the Australian Dollar (AUD) against the major listed currencies today: The Australian Dollar was strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | Australian Dollar | NZD | Swiss Franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.04% | 0.31% | -0.07% | -0.49% | -0.12% | 0.13% | |
| EUR | 0.08% | 0.03% | 0.40% | 0.02% | -0.39% | -0.03% | 0.22% | |
| GBP | 0.04% | -0.03% | 0.34% | -0.03% | -0.45% | -0.10% | 0.16% | |
| JPY | -0.31% | -0.40% | -0.34% | -0.36% | -0.79% | -0.45% | -0.19% | |
| CAD | 0.07% | -0.02% | 0.03% | 0.36% | -0.42% | -0.04% | 0.19% | |
| Australian Dollar | 0.49% | 0.39% | 0.45% | 0.79% | 0.42% | 0.38% | 0.61% | |
| NZD | 0.12% | 0.03% | 0.10% | 0.45% | 0.04% | -0.38% | 0.25% | |
| Swiss Franc | -0.13% | -0.22% | -0.16% | 0.19% | -0.19% | -0.61% | -0.25% |
The heat map displays the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select the Australian Dollar from the left column and move it along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Federal Reserve FAQs
Monetary policy in the United States is set by the Federal Reserve (FRB), which has two mandates: to promote price stability and full employment. Its primary tool for achieving these goals is adjusting interest rates. When prices rise sharply and inflation exceeds the Fed's 2% target, the Fed raises interest rates, increasing borrowing costs across the economy. As a result, the United States becomes an attractive place for international investors to park their funds, strengthening the US Dollar (USD). When inflation falls below 2% or unemployment is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the USD.
The Federal Reserve Board (FRB) meets eight times a year, where the Federal Open Market Committee (FOMC) assesses the state of the economy and sets monetary policy. The FOMC is attended by 12 Fed officials: the seven members of the Federal Reserve Board, the President of the Federal Reserve Bank of New York, and four of the remaining 11 regional reserve bank presidents. These presidents serve rotating one-year terms.
In extreme circumstances, the Federal Reserve may resort to a policy known as quantitative easing (QE). QE is a process in which the Federal Reserve dramatically increases the flow of credit in a distressed financial system. It is a non-standard policy tool used during crises or when inflation is extremely low. It was the tool of choice for the Federal Reserve during the 2008 financial crisis. This means that the Federal Reserve prints more dollar bills and uses them to buy higher-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, where the Fed stops buying bonds from financial institutions, reinvesting the principal of maturing bonds and not buying new bonds, which is usually positive for the value of the US dollar.
