Australian Dollar declines after US data and Aussie Retail Sales

US PCE Prices Index remained steady in September, as well as the core measure.
US jobless claims fell to 216K in the week of October 25.
Retail Sales in Australia grew in September slightly below expectations.

The AUD/USD declined by 0.45% to 0.6545 in Thursday's session, remaining near an 11-week low of 0.6540 ahead of the US Nonfarm Payrrolls data on Friday. This decline comes after the recent surge in US inflation and mid-tier economic data.

Additionally, Retail Sales in Australia grew marginally in September, falling below expectation, which seems to be weighing on the Aussie Dollar.

Daily digest market movers: Australian Dollar declines amid weakening weakening economy and steady USD

On the Aussie front, Retail Sales somewhat tanking in September is making investors dump the AUD as it may prompt a more dovish stance from the Reserve Bank of Australia.
On the other hand, Market expectations for the upcoming Federal Open Market Committee (FOMC) meeting next week currently suggest a 25 -basis-point rate cut, influenced by recent economic indicators.
A key focus for investors will be October’s NFP data, with forecasts indicating 113K new jobs were added, a notable drop from September’s 254K.
The latest US jobless claims report showed a decline to 216K for the week of October 25, contradicting predictions of a rise to 230K, which underscores ongoing labor market resilience.
The core PCE Price Index, closely monitored by the Federal Reserve, held steady at 2.7% in September, despite projections of a decrease to 2.6%.
Additionally, the broader PCE Price Index grew at 2.1% annually in September, down slightly from August’s 2.2% and below the anticipated 2.2% rate.

AUD/USD technical outlook: Pair remains bearish, indicators oversold

The daily Relative Strength Index (RSI) is currently at 30, which is in the oversold area. The RSI's slope is declining sharply, suggesting that selling pressure is rising. The Moving Average Convergence Divergence (MACD) is flat and in the red, indicating that selling pressure is flat. Both suggest that the selling pressure might have become over-extended and that a consolidation is coming.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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