AUD/USD jumps to near 0.6380 on better-than-expected Aussie employment
- AUD/USD advances to near 0.6380 as upbeat Aussie employment data is likely to force traders to pare RBA dovish bets.
- On Tuesday, the RBA cut its OCR by 25 bps to 4.10%, the first interest rate cut in more than four years.
- Higher US Initial Jobless Claims have weighed further on the US Dollar.
The AUD/USD pair posts a fresh two-month high near 0.6380 in Thursday’s European session. The Aussie pair is 0.6% higher as the Australian Dollar (AUD) performs strongly across the board, except the Japanese Yen (JPY), after the release of the better-than-projected Australian labor market data for January.
The Australian Bureau of Statistics reported that the economy added 44K workers, more than double than expectations of 20K but lower than 60K addition seen in December. The Unemployment Rate accelerated to 4.1%, as expected, from 4% in the previous month.
Upbeat Aussie employment data adds to expectations that the Reserve Bank of Australia (RBA) will remain cautious on further policy-easing. On Tuesday, the RBA announced its first-ever interest rate cut decision since November 2020 but cleared that the battle against inflation is not over yet. The RBA guided a cautious stance on interest rate cuts after reducing its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10%.
Meanwhile, a sharp weakness in the US Dollar has also strengthened the Aussie pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 106.75.
Earlier in the day, the Greenback was already underperforming, slightly higher-than-expected United States (US) Initial Jobless Claims data for the week ending February 14 has weighed further. The Department of Labor reported that individuals claiming jobless benefits for the first time were 219K, higher than estimates of 215K.
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.