Australian Dollar edges higher following employment data, RBA Bullock comments

The Australian Dollar receives support from the hawkish comments from the RBA Governor Michele Bullock.
Australia’s seasonally adjusted Unemployment Rate held steady at 4.1% in October for the third consecutive month.
Traders are now shifting their focus to the US October Producer Price Index (PPI) data, set to be released on Thursday.

The Australian Dollar (AUD) breaks its four-day losing streak against the US Dollar (USD) following the key economic data release on Thursday. Australia's Consumer Inflation Expectations dropped to 3.8% in November, down from 4.0% in the previous month, reaching the lowest level since October 2021.

Australia’s seasonally adjusted Unemployment Rate remained steady at 4.1% in October for the third consecutive month, in line with market expectations. However, Employment Change showed only 15.9K new jobs added in October, falling short of the anticipated 25.0K.

Reserve Bank of Australia (RBA) Governor Michele Bullock stated on Thursday that current interest rates are sufficiently restrictive and will remain so until the central bank is confident about inflation trends. Bullock noted the uncertainty surrounding potential actions by the US Federal Reserve and emphasized that the RBA will avoid making any hasty decisions.

The US Dollar (USD) hovers around 106.53, its highest level since November 2023, driven by "Trump trades" and October's US Consumer Price Index (CPI) data. Donald Trump’s victory in last week’s US presidential election fueled expectations of potentially inflationary tariffs and other measures from his upcoming administration, giving a strong boost to the Greenback.

Australian Dollar receives support from hawkish comments from RBA bullock

Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem commented on Wednesday that persistent inflation challenges make it difficult for the Fed to continue easing rates. Musalem redirected attention to the overall strength of the US labor market, seeking to alleviate concerns about inflation's resistance to the Fed's downward pressure efforts.
Federal Reserve Bank of Kansas City President Jeffrey Schmid highlighted potential challenges in the journey toward lowering interest rates. Schmid also criticized market participants who continue to hold out hope for a return to near-zero rates, calling their expectations unrealistic.
US Consumer Price Index (CPI) increased by 2.6% year-over-year in October, in line with market forecasts. Meanwhile, the core CPI, which excludes the more volatile food and energy components, rose by 3.3% as expected.
Australia's Prime Minister Anthony Albanese shared in a radio interview on Wednesday that he discussed trade with US President-elect Donald Trump during a phone call last week. Albanese informed Trump that the United States holds a trade surplus with Australia and emphasized that it is in Washington's best interest to "trade fairly" with its ally. Meanwhile, the defense minister underscored Australia's significant investment in security.
Matthew Hassan, Senior Economist at Westpac, noted "Consumers are feeling less pressure on their family finances, are no longer worried about further interest rate rises, and are increasingly confident in the economic outlook."
Last week, China's latest stimulus measures fell short of investor expectations, further dampening demand prospects for Australia’s largest trading partner and weighing on the Australian Dollar. China announced a 10 trillion Yuan debt package designed to alleviate local government financing pressures and support struggling economic growth. However, the package stopped short of implementing direct economic stimulus measures.
Morgan Stanley divides the Trump administration's macroeconomic policies into three key areas: tariffs, immigration, and fiscal measures. The report predicts that tariff policies will be prioritized, with an anticipated immediate imposition of 10% tariffs globally and 60% tariffs specifically on China.
On Thursday, Federal Reserve Chair Jerome Powell stated he doesn’t anticipate Trump’s potential return to the White House impacting the Fed’s near-term policy decisions. “We don’t guess, speculate, and we don’t assume what future government policy choices will be,” Powell noted after the bank decided to lower interest rates by 25 basis points to a range of 4.50%-4.75%, as expected.

Australian Dollar trades below 0.6500 due to short-term downward pressure

The AUD/USD pair trades near 0.6490 on Thursday. An analysis of the daily chart indicated short-term downward pressure, with the pair remaining below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) is below the 50 mark, reinforcing a bearish outlook.

The AUD/USD pair may find support near the psychological level of 0.6400. A break below this level could increase downward pressure, potentially leading the pair to approach the yearly low of 0.6348, last reached on August 5.

On the upside, immediate resistance is seen at the psychological level of 0.6500. A break above this could push the AUD/USD pair toward the nine-day EMA at 0.6550, followed by the 14-day EMA at 0.6573. Clearing these EMAs may propel the pair toward its three-week high of 0.6687, with the next psychological target at 0.6700.

AUD/USD: Daily Chart

Economic Indicator

Employment Change s.a.

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. The statistic is adjusted to remove the influence of seasonal trends. Generally speaking, a rise in Employment Change has positive implications for consumer spending, stimulates economic growth, and is bullish for the Australian Dollar (AUD). A low reading, on the other hand, is seen as bearish.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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.