- Rising US Unemployment figures had USD facing selling pressure.
- Australia reported mixed housing data on Friday.
- Monterey divergences between the Fed and RBA might push the pair up further.
The Australian Dollar (AUD) holds its ground against the USD on Friday, which weakened following soft US Nonfarm Payrolls (NFP) figures but stands at its highest level since early January at 0.6740.
The Reserve Bank of Australia (RBA) might be one of the final G10 central banks to initiate cuts, which should continue to support the Aussie amid these conditions. Despite signs of a weakening Australian economy, persistent inflation prompts the RBA to remain hawkish, and encouraging Retail Sales data reported earlier in the week depicts a strong economic outlook.
Updated daily market movers: AUD strength holds despite sluggish housing market
- Housing loan commitments in Australia for March have risen up to 3.1% MoM, beating the expected 1.0% and a revised 1.9% from February.
- However, this may signal a boost in house prices impacting average loan sizes, rather than an increase in demand for domiciles.
- Current consumer sentiment surveys point toward sluggish buying sentiment in terms of housing.
- Across the Pacific, US NFPs revealed a rise of 206K in June, exceeding the market expectation of 190K. This followed a revised 218K increase in May.
- Nevertheless, these figures have not done much to bolster the USD, as the Unemployment Rate in the US has slightly risen to 4.1% from 4%.
- Wage inflation, measured by the change in the Average Hourly Earnings, declined to 3.9% YoY, widely expected by markets.
- On the RBA side, markets indicate a marginal 10% probability of a rate hike from the RBA before the end of the year.
- On the Fed’s side, the market is fully pricing in two rate cuts by the end of the year, subject to the ongoing labor market data and inflation figures.
Technical analysis: AUD/USD maintains momentum, bullish outlook continues
The AUD/USD pair shows no signs of losing momentum, backed by the deep positive territory of technical indicators of the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD). As the pair reaches its January highs, the bullish outlook is more promising. However, traders should monitor if the mentioned indicators start to flag overbought conditions.
The next bullish targets are the resistances at 00.6750 and 0.6800. Concurrently, the support levels to watch are 0.6670, 0.6650 and 0.6630.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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