Australian Dollar down as markets await US NFPs
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Patricio Martín
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06 Feb @ 08:47 (GMT+0)

Australian Dollar down as markets await US NFPs

  • Aussie dips near 0.6280 amid trade gloom.
  • RBA likely to cut rates to 4.1%, capping Aussie gains.
  • Markets await US labor data for fresh momentum.
  • Soft Trade Balance data from Australia also affected the Aussie.

The Australian Dollar (AUD) softens to around 0.6280 in Thursday’s American session, tallying nearly 0.30% losses. Expectations of a Reserve Bank of Australia (RBA) rate cut and revived United States (US)-China tariff anxieties hamper the pair’s upside. Meanwhile, attention shifts to the United States labor market report on Friday, with the Aussie bracing for further volatility.

Daily digest market movers: Aussie edges lower as US Dollar recovers

  • On the local front, Australia’s trade surplus shrank to 5,085M in December from 6,792M, below expectations of 7,000M, as exports rose just 1.1% while imports surged 5.9%.
  • Markets now price a 95% chance of an RBA rate cut from 4.35% to 4.10%, undermining the Aussie’s resilience.
  • US President Donald Trump floats the idea of higher tariffs on the Eurozone and China, pressuring the China-linked Australian Dollar.
  • The US Dollar finds support from hawkish Federal Reserve expectations, although weaker labor data could curb USD demand.
  • Investors are now focusing on Friday's Nonfarm Payrolls report, projected to show 170,000 new jobs in January, down from December's 256,000.
  • Jobless Claims raised concerns as Initial claims rose to 219,000, surpassing expectations of 213,000 and up from last week's 208,000, signaling potential labor market softening.
  • Continuing jobless claims increase to 1.886 million, above the forecast of 1.87 million.

AUD/USD technical outlook: Mild retracement stalls near 20-day SMA

The pair declined to 0.6280 on Thursday, after surging past the 20-day Simple Moving Average at approximately 0.6230. The Relative Strength Index (RSI) stands at 55, still in positive territory but declining. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram shows decreasing green bars, hinting at waning bullish momentum.

Although the Aussie’s near-term support may hold above 0.6200, dovish RBA expectations and renewed tariff worries could keep any further advances below the 0.6300 resistance in check. A hold of the 20-day SMA would reject any bearish threats, at least for the short term.

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.