- The Aussie halts decline near 0.6485 with 0.1% rise.
- Despite strong US labor data, the USD remains soft as profit-taking weighs on the buck later in the session.
- The Aussie is supported by a surge in commodities.
In Tuesday's session, the AUD/USD pair partially recovered after Monday's decline following the release of mid-tier US labor data. Despite strong data, the USD weakened primarily due to profit-taking, aiding the Aussie's rebound.
However, the Aussie remained below the 0.6500 level. The pair faced pressure from the widening Australian Current Account deficit and the US Dollar's resurgence due to decreasing risk sentiment prompted by concerns about China's economy and impending tariffs. Market participants now await high-impact US economic data for further guidance. On Wednesday, the US will release ISM Services PMIs and ADP Employment Change figures and on Friday, the economic calendar will feature November’s Nonfarm Payrolls.
Daily digest market movers: Australian Dollar recovers after US data
- On the US front in October, job openings rose by 5% MoM to reach 7.74 million.
- Hiring activity remained stable at 5.3 million in October, and separations were largely unchanged at 5.3 million in October.
- Quits increased to 3.3 million in October, signaling a boost in voluntary job changes, while layoffs and discharges remained relatively stable at 1.6 million in October.
- The JOLTS report suggests that the labor market remains robust with ongoing challenges in finding qualified candidates.
- Bets on the Federal Reserve’s next interest rate decision this month, while largely dependent on incoming data, have raised the likelihood of a 25 bps cut.
- November Nonfarm Payrolls on Friday are the week’s highlight. The market expects 200K new hires after October’s hurricane-affected 12K and for the Unemployment Rate to rise to 4.2%.
AUD/USD technical outlook: Pair’s outlook mixed with no signs of recovery
The AUD/USD pair resumed gains, but indicators remain in negative territory with no clear signs of a reversal. The Relative Strength Index (RSI) is below 50, indicating that bears are in control. On the positive side, the Moving Average Convergence Divergence (MACD) indicator shows green bars, which suggest the presence of buying traction. However, the pair remains below its 20, 100 and 200-day Simple Moving Averages (SMA), which is a bearish sign.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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