The Australian Dollar took a significant hit on Friday, dropping by 0.73% to reach 0.6155. This decline came as stronger-than-anticipated Nonfarm Payrolls data from the US heightened demand for the US Dollar. Adding to the pressure on the Aussie are the Federal Reserve’s hawkish policy stance and ongoing trade tensions between the US and China, which are compounding the currency’s struggles.
In recent trading, the Australian Dollar has been unable to shake off relentless selling pressure, largely due to the unexpectedly robust US job data that has kept it pinned near multi-year lows around the 0.6150 mark. The Federal Reserve’s hawkish approach is maintaining higher yields on US Treasuries, which in turn fuels demand for the Greenback. On Australia’s side, the landscape isn’t any more favorable, as early expectations of interest rate cuts from the Reserve Bank of Australia coupled with persistent US-China trade tensions continue to drag the Aussie down.
Daily Market Movers: Strong US Employment Figures Favor USD Over Aussie
The US Bureau of Labor Statistics recently published a solid report showing 256,000 new jobs were created in December, far surpassing the consensus estimate of 160,000. Meanwhile, November’s figures were adjusted down to 212,000. The unemployment rate dipped to 4.1%, and while average hourly earnings slid from 4% to 3.9% year-over-year, easing some inflation concerns, the overall sentiment favored the USD. The market now predicts that the Fed may only implement one rate cut by 2025, boosting the US Dollar Index (DXY) briefly to 109.96 before a slight retreat. At the same time, uncertainty surrounding China’s economy and the potential for renewed tariffs are driving safe-haven flows towards the USD, putting additional pressure on the trade-sensitive Australian Dollar. With the RBA maintaining a dovish stance and rumors of imminent rate cuts circulating, the Aussie faces yet another layer of vulnerability.
AUD/USD Technical Analysis: Bears in Control with RSI Suggesting Oversold Levels
When diving into the technicalities, the Relative Strength Index (RSI) is hovering around 28, suggesting the currency pair is firmly in oversold territory, and still moving downward. Simultaneously, the MACD (Moving Average Convergence Divergence) histogram is showing increasing red bars, indicative of mounting bearish momentum. With the pair struggling below the 0.6150 level, any attempt at recovery might falter unless there’s a shift in market sentiment or a softening of the Fed’s aggressive stance.
Looking at the chart, immediate support can be found right around that 0.6150, marking a recent multi-year low. A break beneath this could open the way for deeper declines to 0.6100 and possibly 0.6060. On the upside, the initial resistance is pegged around 0.6200, and any meaningful push higher would require breaching 0.6260.
FAQs about the Australian Dollar
The Australian Dollar is influenced by a range of factors, with one of the primary ones being the interest rates set by the Reserve Bank of Australia (RBA). Australia, being a resource-rich nation, also finds its currency affected by iron ore prices, its top export. The economic health of China, Australia’s largest trading partner, plays a significant role, influencing AUD value through changes in trade balance, inflation, and overall economic growth in Australia. Market sentiment, whether risk-averse or risk-taking, can also sway the AUD, with risk-on moods proving beneficial to the currency.
Additionally, the RBA guides the Australian Dollar by adjusting interest rates, aiming to maintain a stable inflation target of 2-3%. Interest rates that stand out as relatively high compared to other key central banks usually support the AUD, whereas lower rates tend to weigh it down. The RBA might also deploy measures like quantitative easing or tightening to tweak market credit conditions, with easing depressing and tightening bolstering the AUD.
China’s economic pulse is a major driver, as its strong performance typically boosts Australian exports, thereby lifting the AUD. Conversely, when China’s economic growth falters, it tends to negatively affect the Aussie. Even fluctuations in data related to China’s economy can have immediate ramifications on AUD and its trading pairs.
Iron ore prices wield substantial influence as well. If these prices rise, demand for the AUD typically ascends, reflecting in a stronger currency, and vice versa if prices fall. Similarly, a favorable trade balance, which occurs when Australia’s earnings from exports outstrip its spending on imports, lends strength to the AUD, while a negative balance can weaken it.
