Australian Dollar tumbles as traders brace for US NFP release
- The Australian Dollar attracts some sellers in Friday’s Asian session.
- Discouraging GDP numbers sparks the RBA rate cut bets, weighing on the Aussie.
- The US Nonfarm Payrolls report will take center stage on Friday.
The Australian Dollar (AUD) edges lower on Friday. Disappointing economic growth could prompt the Reserve Bank of Australia (RBA) to adopt a more dovish tone at next week’s monetary policy meeting, potentially setting up a February rate cut. This, in turn, exerts some selling pressure on the Aussie.
Traders will closely monitor the US November employment report, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. The US economy is expected to see 200,000 jobs added in November after rising by 12,000 in October. In case of weaker than estimated outcome, this could drag the Greenback lower and create a tailwind for AUD/USD.
Australian Dollar loses traction amid uncertainties
- A Reuters poll of 44 economists showed the RBA is expected to keep the cash rate unchanged at 4.35% in the next meeting and see the RBA cut rate by 25 bps to 4.10% in Q2 2025 (vs Q1 in the November poll).
- Australia’s GDP expanded 0.3% QoQ in the three months through September, compared with the 0.2% growth in the second quarter. This reading was below the market consensus of 0.4%.
- The US weekly Initial Jobless Claims rose 9,000 to 224,000 for the week ending November 29, according to the US Department of Labor (DoL) on Thursday. This reading came in above initial estimates and higher than the previous week’s 215,000.
- Continuing Jobless Claims went down by 23K to 1.871M for the week ending November 22.
- The Fed Chair Jerome Powell stated on Wednesday that the US economy is stronger now than the US central bank had expected in September when it began reducing interest rates, which means the US central bank can show some restraint in cutting interest rates.
AUD/USD’s bearish bias remains unchanged in the longer term
The Australian Dollar trades weaker on the day. The AUD/USD pair keeps the bearish vibe on the daily chart as the price is below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is located below the 50-midline near 38.85, indicating bearish momentum. This suggests that the path of least resistance is to the downside.
The potential support level emerges at 0.6300, representing the lower limit of the descending trend channel and psychological level. Bearish candlesticks below this level could draw in more sellers to 0.6285, the low of October 3, 2023.
Sustained bullish momentum above the upper boundary of the trend channel of 0.6500 could see a rally to 0.6615, the 100-day EMA. A decisive break above the mentioned level could expose 0.6687, the high of November 7.
RBA FAQs
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.
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.
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.
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.
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.