Australian Dollar remains steady following improved employment data
- AUD/USD holds calm despite strong Australian employment gains, with June adding 76.3K jobs while unemployment held at 4.4%.
- AUD may find support as strong labor data boosts expectations for another RBA interest rate hike.
- US Dollar struggles as economic weakness outweighs rising energy-driven inflation concerns.
AUD/USD holds ground after registering minor gains in the previous day, trading around 0.7000 during the European hours on Thursday. The pair remains steady as the Australian Dollar (AUD) moves little following the release of improved Australian employment data.
Australia’s Unemployment Rate held steady at 4.4% in June, matching market expectations. Employment jumped by 76.3K, far beating the forecast of 15K and expanding on May’s revised 44K gain.
However, the strong labor data may boost support for the Australian Dollar (AUD) as it raised expectations of another rate hike by the Reserve Bank of Australia (RBA). The central bank has already raised rates three times this year to 4.35%. Meanwhile, traders remain cautious ahead of Friday’s flash PMI readings.
The AUD/USD pair holds ground as the US Dollar (USD) struggles amid a weakening US economy, outweighing energy-driven inflation fears. While markets broadly expect the Federal Reserve (Fed) to leave interest rates unchanged at its upcoming meeting, shifting policy expectations and unclear guidance from new Fed Chair Kevin Warsh have added an extra layer of uncertainty to the Dollar's long-term outlook.
Regional tensions spiked as US President Donald Trump threatened strikes on Iranian infrastructure over Strait of Hormuz ship attacks, drawing threats of retaliation from Tehran against US-linked energy assets. Meanwhile, Iran-backed Houthi militants fired missiles and drones at two Saudi oil tankers in the Red Sea. The first direct strikes on tankers in this waterway threaten a key alternative export route for Saudi crude and open a dangerous new front in the conflict.
Australian Dollar FAQs
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.
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.
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.
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.
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.
