The AUDUSD pair fell to around 0.6735 during the US session on Friday, losing 0.10% during the period. This decline came despite the hawkish comments from the Reserve Bank of Australia that failed to support the Australian dollar given the cautious atmosphere prevailing in the markets.
The US non-farm payrolls report for August is eagerly awaited, which is the most important event of the day. The pair witnessed quieter trading at 0.6735, stopping a two-day losing streak in the US session. Markets are witnessing noticeable tension ahead of the US employment reports.
Despite the weakness of the US dollar, the Australian dollar (AUD) was unable to achieve gains, even with the hawkish comments of the Reserve Bank of Australia Governor, Michelle Bullock. Bullock indicated on Thursday that “the Board does not expect to cut interest rates in the near term if the economy develops as expected.”
In contrast, investors expect the US Federal Reserve to move towards easing its monetary policy at its next meeting in September. Markets are currently pricing in a 59% chance of a 25bp Fed rate cut in September, while the probability of a 50bp cut is 41%.
Weak ADP employment data on Thursday weighed on the US dollar versus the Australian dollar. ADP showed private sector employment increased by 99,000 jobs in August, compared to a 111,000 (revised from 122,000) gain in July, well below expectations of 145,000.
Friday’s US employment data is expected to provide clues about the size and pace of the Fed’s rate-easing cycle. Investors are expecting nonfarm payrolls to increase by 160,000 in August, with the jobless count expected to rise by 114,000 in July, and the unemployment rate to fall to 4.2%. Weaker readings could push the Fed towards a 50bp rate cut.
RBA Governor’s Statements and Their Impact on the Australian Dollar and Markets
RBA Governor Michelle Bullock has said that it is too early to think about cutting interest rates in the near term. She explained that inflation remains high in Australia, which requires higher interest rates to remain in place for a longer period to ensure inflation is tamed. Despite slowing economic growth in the second quarter of the year, as data showed a weakness in the economic expansion, the inflation rate in Australia slowed to 3.5% in July.
Bullock’s comments come at a time when RBA policymakers have maintained a cautious tone, while other major central banks have cut interest rates, which has led to a slight optimism in the outlook for the AUD/USD pair. RBA officials stress that they need more time to tame inflation, as interest rates have not risen as much as other major central banks. However, investors remain somewhat optimistic, with a 42% chance of a rate cut in November.
The Australian dollar received a significant boost from the positive trade balance data released on September 5. In this context, Reserve Bank of Australia (RBA) Governor Michelle Bullock spoke at the ANICA Foundation in Sydney, noting that high inflation costs make it premature to think about cutting interest rates. Bullock confirmed that the bank does not expect to cut interest rates in the near term. In contrast, the US dollar came under pressure on Friday due to mixed economic data. US private employment data for August showed 99,000 new jobs, below expectations of 144,000, raising concerns about a deteriorating labor market. However, another report showed a larger-than-expected drop in jobless claims. Meanwhile, ISM purchasing managers’ index data showed an improvement in business activity in the services sector.
Economic Data Impact on the Australian Dollar
The Australian Dollar (AUD) snapped a two-day winning streak against the US Dollar (USD) as traders eagerly await the upcoming US Non-Farm Payrolls (NFP) data. The data is expected to provide further clues on the likelihood of a rate cut by the Federal Reserve (Fed) this month.
Meanwhile, the US Dollar continues to slide after dovish comments from Fed officials. However, positive economic data could cap the dollar’s decline further. In a statement on Friday, Chicago Fed President Austin Goolsbee indicated that long-term trends in the labor market and inflation data could warrant a gradual easing of monetary policy by the Fed over the coming year.
Daily Market Movers Summary:
The Australian Dollar fell ahead of the US Non-Farm Payrolls data. The ADP private sector employment report showed that employment increased by 99,000 in August, missing expectations of 145,000 and down from July’s 111,000 increase. Meanwhile, weekly initial jobless claims in the US rose to 227,000 for the week ending August 30, compared to the previous reading of 232,000, but below the initial expectations of 230,000.
In Australia, the trade surplus widened to $6,009 million in July, beating expectations of $5,150 million and the June reading of $5,589 million.
Technical Analysis:
The Australian dollar is holding above its 50-day exponential moving average near the 0.6700 level. Currently, the AUD/USD pair is trading around 0.6740, below the exponential moving average, indicating a short-term bearish trend. However, the 14-day Relative Strength Index (RSI) is slightly above 50, which could indicate a potential bullish bias.
