AUD/USD reverses earlier gains on Friday as stronger-than-expected US Nonfarm Payrolls (NFP) data supports the US Dollar (USD), adding modest pressure on the Australian Dollar (AUD), while price action remains subdued amid thin liquidity due to the Good Friday holiday.
At the time of writing, AUD/USD is trading around 0.6900, after touching an intraday high of 0.6916. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is consolidating gains above the 100 mark.
According to data released by the US Bureau of Labor Statistics, the US economy added 178K jobs in March, comfortably exceeding expectations of 60K. Notably, February’s figure was revised lower to show a loss of 133K jobs, compared to the previously reported decline of 92K. The Unemployment Rate ticked lower to 4.3% from 4.4%.
Despite the strong headline print, softer wage growth offered a more balanced picture. Average Hourly Earnings rose by 0.2% MoM in March, below the 0.3% forecast and easing from 0.4% previously. On an annual basis, earnings increased by 3.5%, missing expectations of 3.7% and slowing from 3.8%.
The data reinforced expectations that the Federal Reserve (Fed) will remain patient before delivering any rate cuts, as ongoing Oil-driven inflation risks continue to cloud the policy outlook. This has prompted traders to scale back rate cut expectations and increasingly price in a prolonged hold, with markets now expecting rates to remain unchanged through 2026, according to the CME FedWatch Tool.
Elsewhere, traders also digested the latest data from the National Bureau of Statistics of China, released earlier on Friday, which showed the Manufacturing Purchasing Managers Index (PMI) rising to 50.4 in March, up from 49 previously and above expectations of 50.1. Australia’s economy is closely tied to China, its largest trading partner, making the Australian Dollar sensitive to shifts in Chinese economic activity.
Australian Dollar FAQs
One of the most significant 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 key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
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 influences the level of interest rates in the economy as a whole. The main goal of the RBA 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 AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
