- AUD/USD falls sharply, breaking below the 0.6300 mark as selling pressure builds.
- Australia’s employment report reveals unexpected job losses, weighing on sentiment.
- The US Dollar strengthens after the Federal Reserve signals persistent inflation risks and maintains a cautious stance.
- Technical indicators suggest further downside, with the pair trading below key moving averages.
AUD/USD decline accelerates as the labor market weakens and the US Dollar (USD) strengthens. The pair is falling sharply on Thursday, slipping beneath a key support level as Australia’s labor market unexpectedly deteriorated. The latest employment report showed a significant drop in job figures, raising concerns about the country’s economic outlook. Meanwhile, the US Dollar remained resilient after the Federal Reserve (Fed) reaffirmed its stance on keeping rates restrictive, reinforcing expectations that monetary policy will remain tight for an extended period.
Daily digest market movers: Australian Dollar struggles as weak labor data pressures sentiment
- Australia’s labor market showed signs of weakness in February, with payrolls shrinking by 52.8K, a stark contrast to market forecasts of a 30K increase. The unemployment rate remained unchanged at 4.1%, but the downturn in job creation heightened concerns about economic resilience.
- The US Dollar extended its gains, with the US Dollar Index (DXY) surpassing 104.00 as market participants digested the Federal Reserve’s latest policy statement. The Fed held interest rates steady in the 4.25%-4.50% range while maintaining its projection for two rate cuts later this year, reflecting persistent concerns over inflation.
- Uncertainty surrounding US trade policy continues to weigh on risk-sensitive currencies like the Australian Dollar. With investors closely monitoring potential retaliatory actions from global trade partners, fears of a broader economic slowdown remain elevated. Given Australia’s reliance on commodity exports to China, any weakness in Chinese demand could place additional downward pressure on the Aussie.
- The Reserve Bank of Australia (RBA) remains cautious, monitoring inflation trends and global trade risks before committing to further policy adjustments. While the central bank cut rates by 25 basis points in February, future decisions will depend on evolving economic conditions.
- Market attention now shifts to upcoming US labor market data, with Initial Jobless Claims coming in at 223K, aligning closely with projections. Investors will continue assessing the strength of the US labor market to determine the Fed’s next moves.
AUD/USD Technical Analysis: Bearish pressure intensifies as key support levels break
The AUD/USD pair extended its retreat on Thursday, hovering near the 0.6300 zone during the American session as sellers dominated price action. The pair dropped below both the 20-day and 100-day Simple Moving Averages (SMA), reinforcing a negative outlook.
The Moving Average Convergence Divergence (MACD) indicator showed a decline in green bars, signaling weakening bullish momentum. Meanwhile, the Relative Strength Index (RSI) fell to 49, slipping into negative territory, which confirms growing downside risks.
Immediate support appears near 0.6280, where some demand may emerge. If bearish momentum persists, the next downside target lies around 0.6220. On the upside, resistance is seen near 0.6340, with further advances likely to be met with selling interest.
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.
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