- AUD/USD surrenders some intraday gains as the US Dollar gains further.
- Surprisingly upbeat Australian labor market data would force the RBA to maintain a hawkish interest rate stance.
- The US Dollar extends gains on expectations of Donald Trump winning presidential elections.
The AUD/USD pair surrenders half of its intraday gains after rising to 0.6700, which were inspired by the upbeat Australian Employment data for September in Thursday’s European session.
The Aussie labor market data showed that the economy added fresh 64.1K jobs, which were unexpectedly higher as market participants projected lower payrolls at 25K than 42.6K in August. The Unemployment Rate grew steadily by 4.1%, while economists expected it to accelerate to 4.2%.
Upbeat Aussie Employment data is expected to restrict Reserve Bank of Australia (RBA) officials from hiking interest rates anytime this year.
Though the Australian Dollar (AUD) outperforms its major peers, the upside in the Aussie pair is expected to remain restricted as the US Dollar (USD) extends its upside on expectations that former US President Donald Trump will defeat Democratic Kamala Harris in presidential elections. Market experts expect higher tariffs on imports, loosening financial conditions and more tax cuts in Trump 2.O administration.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises over 10-week high above 103.50.
Going forward, the next move in the US Dollar will be influenced by the United States (US) Retail Sales data for September, which will be published at 12:30 GMT. The Retail Sales data is estimated to have grown by 0.3%.
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.
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