Forex news

AUD/USD Clears October High Ahead of Australia Employment Report

The AUD/USD is nearing an October high after clearing its high from late September. A rebound in the employment data in Australia is expected to halt the recent drop and support the currency pair. However, a below-forecast print would be bearish for the Aussie dollar as it would sap bets on an RBA rate hike this year.

The RBA is attempting to contain the risk of inflation and recession in Australia. They recently hiked their cash rate target by 25bps to 2.85%, which knocked AUD/USD down from its recent high of 0.7465. In September, Australian inflation hit a record 7.3% annual rate, the highest level since the mid-90s. However, the RBA’s decision to raise interest rates stokes fears about the impact of high rates on Australian households.

The unemployment rate released by the Australian Bureau of Statistics is a key piece of economic data for the Australian dollar. If the number of unemployed workers goes down, it will boost consumer spending and the Australian economy. However, if the unemployment rate is increased, it will be bad for the AUD.

A recent series of higher highs and lows may push AUD/USD towards the Fibonacci overlap around the 50% and 23.6% retracement of the October high (0.6916). However, the Relative Strength Index is approaching overbought territory, so a failure to break above 70 will undermine the recent advance. If the pair breaks the 0.6650 area, it may go on to test the 0.6460 61.8% retracement of the September high.

A disappointing employment report for Australia on Thursday will have the Aussie under pressure, but there are other reasons for the market to move higher. For example, iron ore shipments have increased by 17% in Q3 of this year. Rio Tinto is Australia’s largest mining company, and these shipments may contribute to Australia’s GDP growth.

A recent study by ING Group forecasts that the AUD/USD will rise modestly over the next two years. The Dutch multinational lender predicts that AUD/USD will trade at 0.61 in December 2022 and 0.63 in the first quarter of 2023. Then, it is likely to stabilise until the end of 2022 before rising slowly to 0.65 in September and 0.70 in December 2023.

The Australian dollar’s strength is driven by differences in interest rates in major economies. Australia’s interest rates are generally higher than those of most developed economies. This creates a risk premium that drives the relative price of Australian dollar assets. As a result, the exchange rate is influenced by the stock of foreign liabilities, the current account balance, and investor’s appetite for risk. During the European debt crisis, the relative risk premium declined. This helped the Australian dollar by encouraging foreign investors to invest in highly-rated Australian government bonds.