The Australian Dollar May Experience Changes Ahead of US NFP Reports

• Negotiations on tariffs continue following productive discussions between President Trump and Chinese President Xi Jinping.
• The US non-farm payroll may have increased by 130,000 jobs in May, with the unemployment rate expected to hold steady at 4.2%.

The Australian Dollar (AUD) is set to weaken against the US Dollar (USD) this Friday as traders focus on upcoming US Non-Farm Payroll (NFP) data.

Despite some improvement in market sentiment due to talks between President Trump and President Xi of China, Trump has characterized these discussions as productive and has reaffirmed a commitment to continue negotiations around tariffs. However, it seems there have been challenges, as Trump’s administration has struggled to maintain a unified front with Chinese trade officials. Given the strong trading ties between China and Australia, shifts in the Chinese economy can certainly influence the AUD.

Minutes from the Reserve Bank of Australia’s (RBA) May meeting suggest a strong inclination among policymakers towards a cautious approach, specifically regarding a potential 25 basis point rate cut. RBA Deputy Governor Sarah Hunter cautioned that US tariffs could have significant ripple effects on the global economy, expressing concerns that heightened uncertainty might dampen investment, production, and employment in Australia.

Australian Dollar Faces Hurdles as US Dollar Begins to Recover

• The US Dollar Index (DXY), gauging the dollar’s value against six major currencies, currently hovers around 98.80. Predictions indicate that the US is set to add 130,000 jobs in May, down from April’s 177,000 increase, while the unemployment rate is expected to remain stable at 4.2%.
• Data from the U.S. Department of Labor shows that initial unemployment claims have surpassed expectations, hitting over 247,000, compared to the anticipated 235,000. Additionally, ADP reported a gain of just 37,000 jobs in the private sector for May, starkly lower than the predicted 115,000.
• The Institute for Supply Management (ISM) noted a drop in the Services Purchasing Managers Index (PMI) to 49.9 from May’s 51.6, straying from expectations of 52.0.
• On his social media platform, Trump urged Federal Reserve Chairman Jerome Powell to lower interest rates, asserting the urgency for action following disappointing employment numbers.
• Minneapolis Federal Reserve President Neil Kashkari indicated signs of a slowing labor market, but emphasized first addressing economic uncertainties before making further policy decisions.
• House Republicans have passed Trump’s significant tax and spending bill, a move that could enlarge the budget deficit and poses risks to bond yields. This situation has raised alarms about the US economy while prompting traders to divest from American assets.
• In a surprising turn, Elon Musk, a former supporter of Trump, criticized his budget plan, mocking it on social media and questioning its fiscal prudence.
• Last week, Trump claimed that China violated a tariff ceasefire established at earlier negotiations. While both countries had agreed to temporarily lower tariffs, Trump accused China of failing to uphold its end of the bargain, a sentiment echoed by his trade representatives. Meanwhile, the Chinese Ministry of Commerce asserted compliance with the agreement.
• The Kaisin Manufacturing PMI in China unexpectedly fell to 48.3 in May, while the National Bureau of Statistics (NBS) reported a slight rise to 49.5. Such mixed data may affect the Australian dollar given the countries’ close trading relationship.
• Australia’s trade balance saw a surplus of 5,413 million AUD last month, with exports declining by 2.4%. Imports, however, grew by 1.1%. Notably, the Kaisin Service PMI in China rose slightly in May.
• The Australian Bureau of Statistics reported a GDP growth of only 0.2% for the first quarter, falling short of the anticipated 0.4% increase and showing a consistent annual growth rate of 1.3%, below expectations.

The Australian Dollar Stabilizes Around 0.6500

The AUD/USD pair is trading at about 0.6510 on Friday. Analysis of daily charts suggests a generally positive outlook, with the pair holding within a rising channel pattern. Short-term momentum appears strong, indicated by the pair’s position above the nine-day exponential moving average (EMA). Moreover, the 14-day relative strength index (RSI) is above the 50 mark, indicating bullish trends.

That said, the AUD/USD pair may touch a seven-month peak of 0.6538 observed on June 5. There is potential for exploration near the upper boundary of the rising channel, possibly around 0.6680.

The main support stands at the nine-day EMA of 0.6478, aligning with the lower limit of 0.6470 for the rising channel. Should further declines occur, it could undermine the bullish outlook and bring the AUD/USD pair to test the 50-day EMA at 0.6405.

AUD/USD: Daily Charts