Australian Dollar stops the bleeding on strong labor figures

• The Aussie regained its balance on Thursday, supported by strong labor market data.
• US Retail Sales rose by 0.4% in September, surpassing expectations that benefit the USD.
• Strong Australian data might not justify a strong pivot toward easing by the RBA.

In Thursday's session, the AUD/USD currency pair experienced a gain of 0.40%, reaching 0.6695 mainly due to positive labor market data reported during the Asian session. However, the Australian Dollar is currently facing downward pressure as the US Dollar strengthens further mainly due to strong US Retail Sales figures.

The Aussie might gain further if data continue to validate the Reserve Bank of Australia’s (RBA) hawkish stance as it wouldn’t be open to deliver multiple cuts in 2024.

Daily digest market movers: Australian Dollar gains on labor market data

• Australian Employment increased by 64.1K, showing slightly higher growth than the strong results seen in August with most gains in full-time jobs.
• The Australian Unemployment rate was adjusted downward to 4.1%, staying close to historic lows and significantly below the decade’s average.
• The RBA's upcoming decisions will hinge on the third-quarter inflation data, set to be released in two weeks.
• The recent strong performance of the labor market, which has been on an upward trend for several months, could influence the outlook.
• Given the ongoing labor market strength, there may be minimal justification for an interest rate reversal in early November.

AUD/USD technical outlook: Bearish traction stabilizes, Aussie must recover 100-day SMA

The RSI, which measures buying and selling pressure, is currently at 38 in the negative area. But it has a rising slope, suggesting that buying pressure is recovering. The MACD, which measures the momentum of a trend, has a flat red histogram, indicating that selling pressure is flat. Overall, the outlook seems to be mixed with selling pressure taking a breather.

The pair is currently trading around the 0.6696 level. It has been trading within a narrow range over the past week, indicating sideways movement. It has not experienced any significant upward or downward spikes. Support levels can be identified at 0.6650, 0.6630 and 0.6600, while resistance levels are at 0.6700 (100-day SMA), 0.6750 and 0.6800.

RBA FAQs

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

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.

How does inflation data impact the value of the Australian Dollar?

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.

How does economic data influence the value of the Australian 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.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

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.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

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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