Australian Dollar Gains Momentum Amid Mixed Economic Signals
On Monday, the Australian Dollar (AUD) regained ground following a decline in the previous trading session. This resurgence came after the US Dollar (USD) showed strength, buoyed by better-than-expected US employment data released on Friday. This data has led traders to delay their expectations for Federal Reserve (Fed) rate cuts, applying downward pressure on the AUD/USD pair.
US Dollar Strengthens on Robust Employment Data
The US Dollar’s recent gains can be attributed to a robust US jobs report, which has bolstered expectations of a hawkish stance from the Federal Reserve. The CME FedWatch Tool reflects this sentiment, showing that the likelihood of a Fed rate cut in September has decreased to nearly 48.0%, down from 54.8% a week earlier. The data revealed that May’s US Nonfarm Payrolls (NFP) increased by 272,000, significantly higher than April’s 165,000. Additionally, wage inflation, as measured by the Average Hourly Earnings, rose 4.1% year-over-year in May, surpassing market expectations of 3.9%.
RBA’s Hawkish Stance Supports AUD
Despite the pressure from a stronger US Dollar, the Australian Dollar’s downside may be limited due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Last week, RBA Governor Michele Bullock indicated the central bank’s readiness to raise interest rates if the Consumer Price Index (CPI) fails to return to the target range of 1%-3%. This stance has provided some support to the AUD, helping it recover from recent losses.
Divergent Economic Data from China and Australia
Economic data from China, a key trade partner of Australia, also plays a crucial role in influencing the AUD. On Friday, China’s National Bureau of Statistics reported a trade surplus of $82.62 billion in May, exceeding expectations of $73.00 billion. However, imports rose by only 1.8% from the prior year, missing market estimates of 4.2%. This mixed data could impact the Australian market, given the close trade relationship between the two countries.
In contrast, Australia’s trade balance showed positive momentum. The country’s trade balance widened to A$6,548 million in May, surpassing the expected A$5,500 million. This improvement was driven by a significant decrease in imports, which plunged by 7.2% month-over-month in May, while exports shrank by 2.5%.
US Jobless Claims Reflect Economic Uncertainty
The latest US Initial Jobless Claims data added to the mixed economic signals, showing an increase of 8,000 to 229,000 for the week ending May 31. This figure exceeded market expectations of 220,000, marking the highest reading since early May. This uptick in jobless claims indicates some underlying weakness in the US labor market, which could influence future Fed decisions.
Technical Analysis: AUD/USD Outlook
From a technical perspective, the Australian Dollar trades around 0.6580 against the US Dollar on Monday. Analysis of the daily chart suggests a weakening bullish bias for the AUD/USD pair, as it has fallen below the lower boundary of an ascending channel pattern. The 14-day Relative Strength Index (RSI) is positioned slightly below the 50 level, indicating a neutral to bearish sentiment.
Key support for the AUD/USD pair is identified at the 0.6550 level, with a significant level at 0.6500. A break below this could push the pair towards the throwback support at 0.6470. On the upside, the 21-day Exponential Moving Average (EMA) at 0.6625 serves as a crucial resistance, aligned with the lower boundary of the ascending channel around 0.6635. A return to the ascending channel pattern could reinforce a bullish bias, potentially targeting the psychological level of 0.6700 and May’s high of 0.6714.
Market Sentiment and Currency Performance
The Australian Dollar showed varying performance against major currencies on Monday, with the strongest gains observed against the Euro. The percentage change table below illustrates the AUD’s performance:
| Currency | Percentage Change |
|---|---|
| USD | +0.10% |
| EUR | +0.38% |
| GBP | +0.22% |
| CAD | +0.15% |
| JPY | +0.29% |
| NZD | +0.10% |
| CHF | +0.21% |
The AUD’s appreciation against the Euro and other currencies reflects the market’s response to the mixed economic signals and the hawkish stance of the RBA.
Conclusion
The Australian Dollar’s performance on Monday highlights the complex interplay of global economic data and central bank policies. While the robust US employment data has strengthened the US Dollar and delayed expectations for Fed rate cuts, the hawkish stance of the RBA has provided support to the AUD. Divergent economic data from China and Australia further adds to the market dynamics, influencing the AUD/USD pair. Traders will continue to monitor these developments closely, as they navigate the shifting economic landscape and its impact on currency movements.
