AUD/USD slides below 0.6700 as traders look for Aussie Job
- AUD/USD falls below 0.6700 as US Dollar strengthens.
- The Fed is expected to cut interest rates gradually over the remainder of the year.
- Traders await Aussie Employment data for September.
The AUD/USD pair extends its decline below the key support of 0.6700 in the European session on Wednesday. Aussie stocks remain weak as market sentiment remains dovish on the prospects of former US President Donald Trump winning the upcoming presidential election. Trump’s victory could have a negative impact on risk-averse funds as he favors a closed economic culture.
S&P 500 futures show lower performance in European trading hours. The US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, rose to 103.40.
The greenback is setting a new two-month high as market participants expect the Federal Reserve’s (Fed) policy cycle to slow for the rest of the year. According to the CME FedWatch tool, the Fed will cut interest rates by 50 basis points (bps) to 4.25%-4.50% by the end of the year, suggesting two quarterly cuts in to two, which will come in November and December.
Going forward, the next trigger for the US Dollar will be the monthly Retail Sales data for September, which will be published on Thursday. Retail Sales data, a key measure of consumer spending, is expected to rise 0.3%.
On the Aussie front, investors await the Employment data for September, which will be published on Thursday. Labor market data is expected to show the Australian economy added 25K new workers, down from 47.5K in August. The unemployment rate is expected to remain steady at 4.2%. Tracks of steady or strong job growth could allow the Reserve Bank of Australia (RBA) to keep the Official Cash Rate (OCR) steady at 4.35%.
(This story was corrected on October 16 at 12:13 GMT to say that US Retail Sales data was expected to rise 0.3%, not 0.3%.)
Australian Dollar Questions
One of the most important factors for the Australian Dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). Because Australia is a country rich in one of the most important resources is the price of its largest export commodity, Iron Ore The economic health of China, its largest partner of trade, is a factor, along with Australia’s inflation, its growth rate and Trade. Balance. Market sentiment – whether investors are taking riskier assets (risk-on) or looking for safe havens (risk-off) – is also a factor, with a positive risk for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the interest rate at which Australian banks can lend. This influences the level of interest rates in the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2-3% by changing the interest rate up or down. Relatively high rates compared to other major banks support the AUD, and otherwise relatively low. The RBA may also use quantitative easing and tightening to influence credit conditions, with the AUD-negative and the recent positive AUD.
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 China’s economy is doing well it buys more raw materials, goods and services from Australia, boosting demand for the AUD, and pushing up its value. The opposite is the case when China’s 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 main destination. The price of Iron Ore, therefore, can be a driver for the Australian Dollar. In general, if the price of Iron Ore rises, the AUD also rises, as the overall demand for money increases. On the contrary, if the price of Iron Ore falls. High Iron Ore prices also tend to result in a large opportunity for a positive Trade Balance for Australia, which is also positive for the AUD.
The Trade Balance, which is the difference between what a country receives from what it pays from abroad, is another factor that can influence the value of the Australian Dollar. If Australia produces an import that is in high demand, its currency will gain value from the additional demand created from foreign buyers who want to import its goods and that using imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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