- The Australian Dollar losses steam after failing to hold gains above 0.6900.
- Geopolitical tensions between Israel and Iran spur safe-haven demand for the US Dollar.
- US unemployment claims rising above estimates, and strong ISM Services PMI data reduces chances of further aggressive Fed rate cuts.
The Australian Dollar (AUD) loses more than 0.50% against the US Dollar on Thursday, dropping after hitting a daily high of 0.6888 amid concerns that the Israel-Iran war could broaden in the Middle East. This spurred flows toward the Greenback, which briefly topped 102.00 via the US Dollar Index (DXY), but mixed US data capped its gains. The AUD/USD trades at 0.6844.
A risk-off impulse is weighing on the Aussie Dollar. Discussions between the US and Israel continued on how to retaliate against Iran. A headline that US President Joe Biden discussed with Israel a possible attack on Iran’s oil facilities dented appetite for riskier assets like the AUD.
Data revealed by the US Department of Labor showed that the number of people filing for unemployment benefits increased above estimates. Meanwhile, business activity data in the services sectors, revealed by the Institute for Supply Management (ISM) exceeded estimates in September, portraying a robust economy, which could erase the chances for a further 50 basis points (bps) of rate cuts by the Federal Reserve (Fed).
In the meantime, the Balance of Trade in Australia printed a surplus in August, which exceeded estimates of A$5.5 billion, came at A$5.64 billion, up from July’s A$5.636 billion.
Besides that, Australia’s Judo Bank Services Purchasing Managers Index (PMI) decelerates from 52.5 to 50.5 in September. This could refrain the Reserve Bank of Australia (RBA) from adopting a hawkish stance amid concerns that the economy is cooling.
Ahead in the calendar, the Australian economic docket will feature Home Loans and Investment Lending for Homes in August.
Daily digest market movers: Australian Dollar tumbles on risk aversion ahead of US NFP
- US Initial Jobless Claims for the week ending September 28 increased from 219K to 225K, surpassing the estimate of 220K.
- The ISM Services PMI for September expanded from 51.5 to 54.9, while Factory Orders for August declined by -0.2%, missing the 0% estimate and down from the previous month's 4.9% increase.
- US Nonfarm Payrolls, due on Friday, are expected to show 140K jobs added in September, slightly below the 142K jobs in August, with the Unemployment Rate projected to remain unchanged.
- Market participants have placed the odds of a 25 bps rate cut at 66.7%, while the chances of a larger 50 bps cut have decreased to 33.3%, according to the CME FedWatch Tool.
- China’s business activity has deteriorated, which has led to increased stimulus from the People’s Bank of China (PBoC) and the Politburo.
- To stimulate the economy, the PBoC cut loan rates, reduced bank reserve capital requirements and even lowered property down payments. If China’s economy continues to print deflationary readings, it could miss its Gross Domestic Product (GDP) 5% goal for 2024.
Technical outlook: Australian Dollar extends its losses below 0.6850
The AUD/USD remains upwardly biased, but in the short-term the Aussie could test lower prices. The ongoing pullback broke the first support level at 0.6871, exacerbating a drop toward the 0.6800 figure.
From a momentum standpoint, the Relative Strength Index (RSI) is mixed, remaining in bullish territory. However, the RSI is falling almost vertically toward its neutral line. Hence, further AUD/USD downside is seen.
Once AUD/USD cleared the October 1, 2024 low of 0.6856, that has opened the door to challenge the 0.6800 figure. Once surpassed, the next stop would be the 50-day Simple Moving Average (SMA) at 0.6707.
Conversely, if AUD/USD aims higher and closes above 0.6900, look for a retest of the year-to-date high of 0.6934.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.