- Aussie finds some relief after mixed Australian PPI figures.
- Traders are keeping vigilance on job data disappointment from the US.
- Markets adjust their stance on the Reserve Bank of Australia's monetary policy and now expect a cut in 2024.
The Australian Dollar shows a minor recovery against the US Dollar (USD), which is experiencing a sharp drop after disappointing US jobs data. That being said, economic frailties in Australia and increasing rate cut expectations for the Reserve Bank of Australia (RBA) provide a limited upside for the Aussie.
Despite high inflation, weaknesses in Australian economic activity have caused markets to amend their expectations from a rate hike to a rate cut from the RBA by the end of the year. Predictions now propose that the RBA will introduce a cut to tackle economic sluggishness, which could potentially limit further escalation for the Aussie.
Daily digest market movers: Aussie gains ground despite increased RBA cut odds
- Australia's Q2 Producer Price Index (PPI) unveiled this week displayed an increase of 4.8% YoY, a substantial leap from Q1's 4.3%.
- This continued acceleration, hitting its highest point since Q1 of 2023, places the RBA under scrutiny to respond accordingly.
- With the market attributing an 80% chance of an RBA cut by year-end, the Aussie’s upside is limited.
- Across the Pacific, US Nonfarm Payrolls increased by 114K, far less than the predicted 175K.
- The Unemployment Rate climbed to 4.3% as compared to June's 4.1%, and the Labor Force Participation Rate noted a marginal increase to 62.7% from the previous 62.6%.
- The Average Hourly Earnings report showed a drop from 3.8% to 3.6% YoY, which has affected the currency market adversely by adding weight to USD.
- In light of this data, the Federal Reserve (Fed) is expected to initiate interest rate reduction measures starting in September, with a 90% chance priced in according to the CME FedWatch Tool.
AUD/USD Technical Analysis: Bearish tendencies challenged, still room for potential corrections
The AUD/USD trading beneath the 20, 100 and 200-day Simple Moving Average (SMA) prolongs predominantly bearish sentiment. The daily Relative Strength Index (RSI) saw values between 30 and 37 during the past week, reinforcing the bearish perspective. The Moving Average Convergence Divergence (MACD) maintains flat red bars, signaling enduring bearish momentum.
However, the AUD/USD pair seems to exhibit resilience near the 0.6480 mark, indicating a potential key support level. Conversely, resistance is speculated to be around the 0.6560-0.6570 zone, where selling pressure has so far capped the rally.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
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 trades at yearly lows below 1.0500 ahead of PMI data
EUR/USD stays on the back foot and trades at its lowest level since October 2023 below 1.0500 early Friday, pressured by persistent USD strength. Investors await Manufacturing and Services PMI surveys from the Eurozone, Germany and the US.
GBP/USD falls to six-month lows below 1.2600, eyes on key data releases
GBP/USD extends its losses for the third successive session and trades at a fresh fix-month low below 1.2600. This downside is attributed to the stronger US Dollar (USD) as traders continue to evaluate the Fed's policy outlook following latest data releases and Fedspeak.
Gold rises toward $2,700, hits two-week top
Gold continues to attract haven flows for the fifth consecutive day and rises toward $2,700. XAU/USD continues to benefit from risk-aversion amid intensifying Russia-Ukraine conflict. Investors keep a close eye on geopolitics while waiting for PMI data releases.
Ethereum Price Forecast: ETH open interest surge to all-time high after recent price rally
Ethereum (ETH) is trading near $3,350, experiencing an 10% increase on Thursday. This price surge is attributed to strong bullish sentiment among derivatives traders, driving its open interest above $20 billion for the first time.
A new horizon: The economic outlook in a new leadership and policy era
The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the United States.
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.