The Australian Dollar (AUD) has been benefiting from a weaker US Dollar and strong employment data, as the AUD/USD pair extended its recovery momentum on Friday. This was supported by a positive risk tone and hawkish Reserve Bank of Australia (RBA) expectations due to the strong local data underpinning the Aussie. Additionally, a consolidating US Dollar also helped the pair to rise. The Chinese economic slowdown is weighing on risk sentiment and limiting AUD gains, along with soft housing data that also weighed on the USD on Friday.
The positive domestic employment data has led to a strengthening of the Australian Dollar, diminishing expectations for RBA rate cuts. The risk-on sentiment in global equity markets has also undermined USD safe-haven demand. Employment in the country increased by 64.1K, showing slightly higher growth than the strong results seen in August, with most gains in full-time jobs. The unemployment rate was adjusted downward to 4.1%, remaining close to historic lows and significantly below the decade’s average. Despite investors continuing to place bets on a 25 bps cut by the RBA by year’s end, strong data coming in may lead to those odds fading.
The technical outlook for the AUD/USD pair shows signs of recovery, with the Relative Strength Index (RSI) indicating buying pressure recovering while the Moving Average Convergence Divergence (MACD) remains flat. The pair is technically mixed but shows signs of a potential recovery. For the next session, buyers need to defend the 0.6700 area and build support around it.
The Reserve Bank of Australia (RBA) plays a crucial role in setting interest rates and managing monetary policy for Australia. The RBA’s primary mandate is to maintain price stability, which includes an inflation rate of 2-3%, and to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. By adjusting interest rates, the RBA aims to strengthen or weaken the Australian Dollar. Other tools used by the RBA include quantitative easing and tightening, which can impact the value of the AUD.
Inflation, traditionally seen as a negative factor for currencies, can have a positive impact in modern times due to global capital flows. Higher inflation may lead central banks to raise interest rates, attracting more capital inflows and increasing demand for the local currency. Macroeconomic data, such as GDP, employment, and consumer sentiment surveys, can also influence the value of the Australian Dollar. Quantitative Easing (QE) is a tool used by the RBA in extreme situations to provide liquidity, which can result in a weaker AUD. Quantitative Tightening (QT), on the other hand, can be bullish for the Australian Dollar as it indicates an economic recovery and rising inflation.
