- The Australian dollar fell 0.73% to 0.6155 on Friday.
- A hotter-than-expected non-farm payrolls report boosts demand for the US dollar.
- The Fed’s hawkish bias and trade tensions between the US and China are weighing on the Australian dollar.
The Australian dollar remains under intense selling pressure after stronger-than-expected US non-farm payrolls data, hovering near multi-year lows around 0.6150. The Federal Reserve’s (Fed) hawkish turn is keeping US Treasury yields high, further supporting the dollar. Domestically, early expectations of interest rate cuts by the Reserve Bank of Australia (RBA) and growing fears of a trade war between the US and China continue to undermine the Australian dollar.
Daily summary of market drivers: Excellent US jobs report strengthens the US dollar at the expense of the Australian dollar
- The US Bureau of Labor Statistics reported 256,000 new jobs in December, exceeding the consensus of 160,000; The November figure was revised down to 212,000.
- The unemployment rate fell to 4.1%, while average hourly earnings fell from 4% to 3.9% year-on-year, calming concerns about inflation slightly.
- Markets now expect just one Fed rate cut in 2025, pushing the US Dollar Index (DXY) to a high of 109.96 before a slight pullback.
- Economic uncertainty in China and renewed concerns over tariffs are boosting safe-haven flows into the US dollar, increasing pressure on the trade-sensitive Australian dollar.
- The Reserve Bank of Australia’s dovish outlook and speculation about an imminent interest rate cut add another layer of weakness to the Australian dollar.
AUD/USD Technical Outlook: Sellers maintain control as RSI indicates oversold conditions
The Relative Strength Index (RSI) is near 28, indicating oversold territory and continuing the downward trend. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is showing bullish red bars, reflecting the intense bearish momentum. With the pair firmly below the 0.6150 level, any recovery attempts may face difficulties unless market sentiment improves or the Fed’s hawkish stance moderates.
Immediate support is at 0.6150, a multi-year low. A break below exposes 0.6100 and then 0.6060 as next potential floors. On the upside, initial resistance is near 0.6200, followed by 0.6260 – the area that needs to be recaptured for any meaningful recovery attempt.
Frequently asked questions about the Australian dollar
One of the most important 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 major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, as well as Australia’s inflation, growth rate and trade. balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for the Australian dollar.
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 affects the level of interest rates in the economy as a whole. The RBA’s main objective 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 Australian dollar, and relatively low ones do the opposite. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.