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Australian Dollar spikes higher after NFP report misses estimates


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  • Australian Dollar rallies higher versus the US Dollar on Friday after Nonfarm Payrolls misses expectations.
  • The Aussie had already been recovering after markets adopted a risk-on mode reflected in rising Asian stock indices.
  • AUD/USD found a floor at 0.6514 on Thursday and then recovered on the back of upbeat Australian trade data and Chinese services PMIs. 

The Australian Dollar (AUD) rebounds strongly against the US Dollar (USD) on Friday, after Nonfarm Payrolls (NFP) data shows the US added 187K new jobs in July, undershooting estimates of 200K. The data suggests a slowdown in the labor market, which could undermine stubbornly high inflation and eventually lead to lower interest rates — negative for USD. 

The Aussie had already been rising on the back of an improvement in investor sentiment reflected in the rise in Hong Kong’s Hang Seng and Nasdaq e-mini futures. 

AUD/USD trades half a percent higher in the upper 0.65s during the US session.  

Australian Dollar news and market movers 

  • The Australian Dollar quickens its rally against its US counterpart after the latter weakens on below-estimates Payrolls data. 
  • NFP in July came out at 187K, below estimates of 200K. June’s 209K was also revised down to 185K. 
  • Other data within the labor report was more positive, taking the venom out of the headline miss: Average Hourly Earnings rose 0.4% MoM and 4.4% YoY – beating expectations in both cases, and keeping up the performance of the previous month. 
  • The Unemployment Rate fell to 3.5% from 3.6% when no-change had been forecast. 
  • Average Weekly Hours fell to 34.3 from 34.4 when no-change had been forecast. The decline suggests a larger proportion of the new jobs may have been part-time. 
  • Labor Force Participation remained the same at 62.6% and Underemployment fell marginally to 6.7% from 6.9%. 
  • Overall the NFP report suggests there will be less upwards pressure on inflation and the Federal Reserve will not have to adopt as aggressive a strategy as thought to bring it down. This may put a cap on interest rates in the future. Since lower interest rates attract comparatively less foreign capital inflows, they are negative for the US Dollar (positive for AUD/USD). 
  • The Aussie had already been recovering as the Hang Seng stock index registered an over 1.5% rise early Friday and Nasdaq e-mini futures traded up 0.5% in the pre-market, according to CNBC. 
  • The battered Australian Dollar found a floor on Thursday after the release of the Australian Trade Balance in June beat expectations of 11,000M with an $11,321M print. This is also higher than the $10,497M in May. 
  • China Caixin Services PMI in July also beat expectations of 52.5 after coming out at 54.1, from 53.9 in the previous month of June. As Australia’s largest trading partner this is good news for the Aussie. 
  • Australia’s largest export Iron Ore, however, continues its downtrend, giving the Australian Dollar a headwind. Chinese Iron Ore (62%) Futures took a step down to $104 per tonne on Friday from $107 on the previous day. 
  • The Australian Dollar has been on a weak footing since the RBA left the policy rate unchanged at 4.1% on Tuesday morning, against the market expectation for a 25 basis point hike. In the policy statement, the RBA explained that the decision to hold rates unchanged would provide them more time to assess the impact of policy tightening to date and the economic outlook. 
  • That said, they did not completely rule out the possibility of more rate hikes in the future, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks,” the RBA noted.

Australian Dollar technical analysis 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February high at 0.7158 is a key hurdle, which if vaulted, will alter the outlook to one that is more bullish longer term. 

The 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. Price is currently moving down nearer to this key low. 

Australian Dollar vs US Dollar: Weekly Chart

Price has now broken cleanly through the confluence of moving averages (MA) close to 0.6700, made up of most of the major SMAs – the 50-week, 50-day and 100-day. The breaching of this key support and resistance level is a bearish sign. 

Australian Dollar vs US Dollar: Daily Chart

It is possible price may have completed a Measured Move pattern or three wave ABC correction (see daily chart), in July. If so, there is a chance it may be about to start a short-term upcycle. 

AUD/USD has now also broken below the 0.6600 June lows on an intraday basis, and a continuation down to the key May lows at 0.6460, is quite possible. A decisive break below them would open the way for a move down to 0.6170 and the 2022 lows. 

Because the pair is in a sideways trend overall it is unpredictable and the probabilities do not favor either bears or bulls overall – nor is the Relative Strength Index (RSI) providing much insight on either timeframe. 

In technical terms, a ‘decisive break’ consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level. 

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.