Australian Dollar continues soft as markets digest employment data

• AUD/USD declines with the rising US Dollar as Australian employment data disappoints.
• Sluggish job growth and unchanged Unemployment Rate at 4.1% reduce inflation fears in Australia.
• Markets might start to bet on a less aggressive RBA.

The AUD/USD declined by 0.34% to 0.6470 in Thursday's session, extending its decline to a fresh three-month low of 0.6460. The US Dollar is easing after mixed data, while weak Australian employment data has reduced inflationary concerns, which might change the outlook of the Reserve Bank of Australia (RBA).

Lately, the AUD declined against the strengthening USD, driven by positive US economic indicators and increased confidence following Donald Trump’s presidential election. Despite a neutral stance from the RBA, the central bank hinted at a possible rate cut in May 2025. The overall price action indicates that the AUD/USD pair may continue its downtrend, with the DXY reaching new yearly highs, putting pressure on risk-related currencies like the AUD.

Daily digest market movers: Australian Dollar declines due to weak labor data, US data

• Australia's job growth slowed in October, adding 15.9K workers against estimates of 25K, easing inflation concerns.
• Despite the slowdown, the Unemployment Rate remained at 4.1%, suggesting a still-tight labor market.
• The RBA is unlikely to cut interest rates soon as Governor Bullock emphasizes the need to control inflation.
• The US Dollar Index surged to a one-year high near 107.00, driven by Trump's campaign promises of higher import tariffs and lower taxes.
• Investors await Federal Reserve Chair Powell's speech for guidance on interest rate policy.
• As for now, markets anticipate the first 25-basis-point interest rate cut in Australia not before May 2025 but remain confident in a 25 bps cut by the Fed in December.

AUD/USD technical outlook: Pair’s bearish momentum intact, it might start to consolidate

The AUD/USD downtrend remains intact, but oversold conditions in the daily RSI suggest a potential bounce. The indicator has reached deeply into negative territory around 30, a level that often precedes a reversal in momentum. This suggests that the pair may be due for a temporary rebound, although any gains should be viewed as corrective within the broader downtrend.

Support levels lie at 0.6450, 0.6430, and 0.6400, while resistance is encountered at 0.6500, 0.6515, and 0.6550.

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

Share: Feed news