- AUD/USD slips to near 0.6400 during the European session on Thursday.
- Australia adds 89K fresh jobs in April; unemployment rate remains steady at 4.1%.
- Upbeat data trims RBA easing bets, but markets still price in a 25 bps interest rate cut on Tuesday.
The Australian Dollar (AUD) edges lower, retreating to near 0.6400 against the US Dollar (USD) at the time of writing on Thursday, erasing early Asian session gains following a stellar Australian jobs report.
The Australian Bureau of Statistics (ABS) reported the economy added 89,000 jobs in April, sharply beating consensus forecasts of a 20,000 increase, and well above March’s upwardly revised 36,400 gain. The Unemployment Rate held steady at 4.1%, in line with expectations.
The pair had initially jumped during the Asian session, supported by strong labour data. However, the bullish momentum faded after AUD/USD failed to hold above the key 0.6450 psychological barrier, triggering a pullback as traders reassessed the broader market backdrop.
This report signals that Australia’s labor market remains tight, providing the Reserve Bank of Australia (RBA) with less impetus to lower interest rates in the near term. The recent easing of US-China trade tensions, which has helped calm fears of a global recession, also reduces pressure on the RBA to deliver aggressive monetary support. Nonetheless, markets continue to expect a 25 basis point (bps) interest rate cut at the central bank’s upcoming policy meeting on Tuesday, which would bring the Official Cash Rate (OCR) down to 3.85% from 4.10%.
On the geopolitical front, China announced on Wednesday that it will suspend certain non-tariff countermeasures on United States (US) entities for 90 days, following a bilateral agreement over the weekend to reduce tariffs. This marks another step toward de-escalation in the prolonged US-China trade dispute, improving global market sentiment.
Despite these tailwinds, AUD/USD remains under pressure, weighed down by a resilient US Dollar. The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, is holding firm above the 100.00 mark, as traders await the release of US Retail Sales and Producer Price Index (PPI) data for April, due later on Thursday. These reports, along with a scheduled speech from Federal Reserve (Fed) Chair Jerome Powell, could further clarify the Fed’s policy stance and influence near-term USD direction.
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.