- AUD/USD bulls retain firm control as the Aussie stands strong amid weak US data.
- May’s strong Retail Sales figures from Australia continue to support the pair, soft Trade Surplus may limit the upside.
- US traders are out celebrating Independence day.
The Australian Dollar (AUD) held its ground against the USD, maintaining itself in highs since January. This is despite the weaker-than-expected Trade Surplus figures reported during the Asian session as the USD remains weak following Wednesday’s set of soft economic figures reported.
The Australian economy is showing some signs of weakness. However, persistently high inflation is prompting the Reserve Bank of Australia (RBA) to delay potential rate cuts. As potentially one of the last G10 countries’ Central Banks to initiate rate reductions, this could somewhat further extend the gains of the Aussie as markets are also considering rate hikes.
Updated Daily Market Movers: AUD gains strength despite disappointing Trade Surplus data
- Trade Surplus for May in Australia came in at 5,773M MoM, narrower than the 6,678M expected and a downgrade from 6,548M in the previous reading, according to the Australian Bureau of Statistics on Thursday.
- Australia’s Goods/Services Exports rose 2.8% on a monthly basis versus the 2.5% decline in the prior month, offering some support to the Aussie.
- From the Reserve Bank of Australia, this week’s minutes reflected an ongoing preference for holding the policy rate steady, primarily due to “uncertainty around consumption data and clear evidence of financial stress among many households”.
- With the bank leaving the door open for rate hikes and with Governor Bullock confirming that the bank will do what’s necessary to bring down inflation, the Aussie might extend its gains.
- Futures markets now assign a 25% probability of a rate hike at the RBA’s August 6 meeting, growing to around 50% in the following meetings.
- For the Federal Reserve, the market’s anticipation for a rate cut in September remains robust, with a 70% odds placed on the expectation.
- Wednesday’s soft ADP, Jobless Claims and ISM Services PMIs definitely boosted the market’s doves confidence of a September cut.
Technical Analysis: AUD/USD continues its strong momentum, outlook favorable for the bulls
The AUD/USD pair retains a robust momentum, with indicators the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) residing deep in positive territory. With the pair in its January highs, it shows a promising outlook.
On the resistance front, 0.6730 and 0.6750 are the next bullish targets. Meanwhile, potential support levels include 0.6670, 0.6650, and 0.6630.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
