On Thursday, the Australian Dollar (AUD) declined below the 0.6500 mark due to the release of the Australian Employment data. In October, the seasonally adjusted Employment Change showed a significant increase of 55K, exceeding market expectations of 20K and the previous month’s figure of 6.7K. However, it was noted that most of the newly created jobs were part-time, which slightly lessened the overall positive effect.
Australia’s Unemployment Rate October’s inflation rate was as projected at 3.7%, remaining consistent with the previous rate of 3.6%. AUD/USD The pair went through ups and downs in the previous session following the release of economic data from the United States (US) on Wednesday.
In October, China’s House Price Index experienced a decrease of 0.38%, which is worse than the previous decline of 0.1%. This indicates a deteriorating situation in the country’s real estate market.
The recent discussions between President Joe Biden of the United States and President Xi Jinping of China, lasting for four hours, have led to a mutual agreement to stabilize the strained relations between the two countries and re-establish certain military communication channels. This commitment signifies a significant attempt to tackle and enhance the intricate association between the nations, which could potentially pave the way for improved diplomatic and strategic cooperation in the times ahead.
President Xi Jinping of China, as reported by Xinhua, expresses a desire for a collaborative alliance with the United States. The main ideas highlighted are the importance of mutual respect, peaceful cohabitation, and working together in different areas including the economy, trade, agriculture, climate change, and artificial intelligence.
President Xi additionally conveyed his wish for the United States to stop providing weapons to Taiwan and to endorse what China refers to as the ‘peaceful reunification’ with Taiwan. Furthermore, there is a plea for the US to remove one-sided penalties and establish an equitable and unbiased atmosphere for Chinese corporations.
The US Producer Price Index (PPI) experienced an unexpected decrease of 0.5% in October, contradicting the predicted 0.1% rise. Additionally, the annual rate also dropped from 2.2% to 1.3%. These numbers correspond to the lower inflation suggested by the US Consumer Price Index (CPI) data released on Tuesday.
According to the US Bureau of Labor Statistics, there was a larger decrease in US inflation than previously expected. This unanticipated slowdown led to a significant drop in the value of the US Dollar (USD).
In terms of the economy, there was a decrease of 0.1% in US Retail Sales in October, which was unexpected as experts predicted a larger drop of 0.3%. Investors will now turn their attention to the weekly Jobless Claims data on Thursday.
The Australian Dollar has lost strength due to conflicting job data in Australia, as reported in the Daily Digest Market Movers.
- Australia’s Wage Price Index, which was predicted to expand by 1.3%, met expectations and surpassed the previous reading of 0.8%. The data from the past year also revealed a growth of 4.0%, slightly exceeding the projected 3.9%.
- In November, consumer confidence in Australia’s Westpac saw a decrease of 2.6%, which was a significant shift from the previous increase of 2.9%.
- RBA’s Assistant Governor (Economic) Marion Kohler said that the decrease in inflation is predicted to happen at a slower pace than originally expected. This is because of the ongoing high level of domestic demand and strong pressures from labor and other expenses. Kohler stressed the importance of implementing a more stringent policy to tackle the difficulties caused by the elevated inflation.
- The economists at the National Australia Bank (NAB) predict that there will be a further increase of 25 basis points in February after reviewing the fourth-quarter inflation data. Moreover, NAB does not expect any interest rate reductions to begin until November 2024.
- In October, China experienced a 4.6% growth in its Industrial Production compared to the previous 4.5%, which was slightly higher than expected. Additionally, Retail Sales saw an increase of 7.6% compared to the anticipated 7.0%.
- The CPI for October in the United States had lower figures than anticipated, with the yearly rate decreasing from 3.7% to 3.2%, which was below the consensus prediction of 3.3%. The monthly CPI also decreased from 0.4% to 0.0%.
- The US Core Consumer Price Index increased by 0.2%, which was lower than the expected 0.3%. Additionally, the annualized rate dropped from 4.1% to 4.0%.
- The Monthly Budget Statement for the US in October showed a deficit of $67B, which was slightly higher than the anticipated deficit of $65B.
Technical Analysis: The Australian Dollar continues to trade below the significant level of 0.6500, which also coincides with the 38.2% Fibonacci retracement.
The Australian Dollar is currently being traded at approximately 0.6490 on Thursday, which is close to the resistance point at the significant level of 0.6500. The following resistance levels to watch out for are the ones at 38.2%.[ Fibonacci ]The AUD/USD pair may experience a pullback around the 0.6508 level, and another potential pullback at around 0.6582, representing a 50% retracement. On the other hand, if the price falls, the pair could find support at the 14-day Exponential Moving Average (EMA) at 0.6429, and potentially at a key support level of 0.6400.
The chart displayed below indicates the fluctuation in the value of the Australian Dollar (AUD) compared to various prominent currencies on the present day. Out of all the currencies, the Australian Dollar experienced the most significant depreciation in relation to the US Dollar.
USD EUR GBP CAD AUD JPY NZD CHF USD 0.10%0.32%0.13%0.45%0.08%0.72%0.12% EUR -0.10%0.22%0.04%0.34%-0.03%0.61%-0.01% GBP -0.33%-0.22%-0.17%0.12%-0.25%0.41%-0.22% CAD -0.13%0.00%0.18%0.29%-0.05%0.59%-0.02% AUD -0.44%-0.35%-0.13%-0.31%-0.37%0.27%-0.34% JPY -0.07%0.03%0.24%0.08%0.38%0.64%0.04% NZD -0.72%-0.62%-0.40%-0.56%-0.28%-0.65%-0.61% CHF -0.11%-0.01%0.22%0.05%0.34%-0.03%0.61%
The heat map provides a visual representation of the percentage changes between different major currencies. The currency being used as a reference is selected from the left column, and the currency being compared to is selected from the top row. For example, if the Euro is selected from the left column and the horizontal line is followed to the Japanese Yen, the percentage change shown in the corresponding box will represent the exchange rate between EUR (base) and JPY (quote).
The level of interest rates set by the Reserve Bank of Australia is one of the most important factors affecting the Australian Dollar (AUD). Another significant driver is the price of Iron Ore, which is Australia’s largest export. Factors such as the health of the Chinese economy, inflation in Australia, its growth rate, and Trade Balance also play a role. Additionally, market sentiment, whether investors are taking on more risky assets or seeking safe-havens, can affect the AUD, with a positive sentiment benefiting the currency.
The Australian Dollar (AUD) is impacted by the Reserve Bank of Australia (RBA) through its control over the interest rates that Australian banks can loan to one another. This, in turn, affects the overall interest rates in the economy. The primary objective of the RBA is to keep inflation stable at a rate of 2–3% by adjusting interest rates accordingly. When compared to other major central banks, higher interest rates support the AUD, while lower rates have the opposite effect. Additionally, the RBA can use quantitative easing and tightening measures to influence credit conditions, with quantitative easing being negative for the AUD and tightening being positive.
China is the biggest trading partner for Australia, meaning that the Australian Dollar’s value is heavily influenced by the state of the Chinese economy. When the Chinese economy is strong, it buys more goods and services from Australia, leading to an increased demand for the Australian Dollar and causing its value to rise. Conversely, if the Chinese economy is not growing as quickly as anticipated, this has a negative effect on the Australian Dollar. Therefore, any unexpected positive or negative changes in Chinese growth data directly impact the Australian Dollar and its trading partners.
According to 2021 data, Iron Ore is the biggest export in Australia, with an annual value of $118 billion. China is the main recipient of this export. As a result, the price of Iron Ore can significantly impact the value of the Australian Dollar. When the price of Iron Ore increases, the Australian Dollar generally strengthens due to higher demand for the currency. Conversely, if the price of Iron Ore falls, the Australian Dollar weakens. Additionally, higher Iron Ore prices often lead to a more favorable Trade Balance for Australia, which further benefits the Australian Dollar.
The Trade Balance, which refers to the discrepancy between the earnings a country receives from the sale of its exports compared to the money it spends on its imports, is a determining factor in the Australian Dollar’s value. When Australia generates high-demand exports, its currency becomes stronger due to the excess demand from international buyers seeking to buy its exports, while spending less on imports. Consequently, a positive Trade Balance enhances the value of the Australian Dollar, whereas a negative Trade Balance has the opposite effect.