Australian Dollar licks its wounds around 0.6900 awaiting US Nonfarm Payrolls data

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The Australian Dollar (AUD) remains practically flat against the US Dollar (USD) on Thursday, consolidating losses after having depreciated nearly 4% in June. The AUD/USD pair is trading within a broadly 65-pip range, with downside attempts contained at 0.6865 and bulls limited below 0.6930 so far.

AUD/USD is looking for direction around 0.6900 after a nearly 4% decline in June.
The unexpected Australian trade deficit in May has weighed on a potential Aussie recovery on Thursday.
Markets are forecasting another solid US jobs report to confirm expectations of a Fed rate hike in September.

Australian data released on Thursday failed to support the pair, as the Trade Balance posted an unexpected deficit in May, with an AUD 3,018 million shortfall. The market had forecast an AUD 2,200 million surplus, a moderate increase from the AUD 1,791 million positive balance seen in April.

A 6.9% decline in exports has reversed April’s 7.2% increase, which is the main reason to explain May’s negative surprise. Imports rose 2.6% from a 0.2% increase in the previous month, adding to May’s shortfall.

Strong US data and the AI fever are propelling the USD

The US Dollar, on the other hand, consolidates gains as recent data bolsters the narrative of US economic exceptionalism, while the AI fever continues to funnel foreign investment into the country, providing additional support to the Greenback.

The Fed Chairman, Kevin Warsh, observed easing price risks in his speech in the European Central Bank’s forum in Sintra, Portugal, on Wednesday but maintained its commitment to fight inflation. Warsh shrugged off political pressures and vowed to bring consumer prices to the 2% target, underpinning hopes of a September rate hike.

On Thursday, all eyes are on June’s Nonfarm Payrolls (NFP) report to confirm those views. The US economy is expected to have created 110K new jobs last month, following three months of figures exceeding expectations that have eased concerns about last year’s labour market. Any reading above 100K would cement expectations of Fed tightening in the near-term, and is likely to provide additional support to the Greenback.

Economic Indicator

Trade Balance (MoM)

The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.