Australian Dollar advances as the US Dollar fails to stop the bleeding
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Patricio Martín
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05 Mar @ 08:47 (GMT+0)

Australian Dollar advances as the US Dollar fails to stop the bleeding

  • The pair advanced by roughly 0.75% during Wednesday’s American session, trading in the mid-0.6300 zone following fresh US data.
  • The Aussie is up nearly 1.40% intraday, contending with the 20-day moving average that could shift the near-term outlook if reclaimed.
  • President Donald Trump’s 10% tariff on China, along with earlier duties, poses a risk to the Australian Dollar’s upside.

The Australian Dollar (AUD) strengthened on Wednesday, with the AUD/USD pair gaining traction after the United States (US) reported mixed ISM Services PMI and softer ADP Employment Change figures. The US Dollar (USD) remains under pressure amid concerns over slowing economic momentum, keeping the Aussie buoyed.

Daily digest market movers: Post-ISM, ADP data shape currency flows amid tariff warnings

  • Renewed US tariffs on Chinese imports add more strain to global risk sentiment. The 10% levy from President Donald Trump compounds earlier duties and the potential for Chinese retaliation remains high, particularly concerning for commodity-linked currencies like the Aussie, given China’s status as Australia’s largest trade partner.
  • On the US data front, the ISM Services PMI showed continued expansion at 53.5, while the ADP report indicated softer private-sector job gains compared to forecasts. These mixed signals weigh on the US Dollar, as traders assess the likelihood of Federal Reserve (Fed) policy adjustments in response to possible economic headwinds.
  • The Reserve Bank of Australia (RBA) has held off announcing more rate cuts since lowering the Official Cash Rate by 25 basis points to 4.10% in February, reiterating concerns about inflation. Market expectations for additional easing remain uncertain, depending on upcoming data.
  • Investors cautiously evaluate riskier assets as the US Dollar’s softness fails to spark a strong Aussie rally. Demand for Australian commodity exports could suffer if trade conflicts escalate. Meanwhile, the Aussie retains some bullish impetus on the back of the subdued Greenback.

Technical analysis: Pair challenges 20-day SMA amid momentum shift

The AUD/USD pair advanced by about 1.40% to roughly 0.6333 on Wednesday’s American session, recovering from intraday lows following the release of the ISM Services PMI and ADP reports. The Moving Average Convergence Divergence (MACD) prints decreasing red bars, indicating ebbing seller strength, while the Relative Strength Index (RSI) lies in the upper 50s, climbing sharply from lower levels.

With the Aussie up nearly 1.40% on the day, reclaiming the 20-day moving average would mark an improvement in its short-term prospects. However, if new tariff developments undermine risk appetite, the pair may retreat toward support around the 0.6250 region, with a more robust floor near 0.6200. Resistance emerges above 0.6350, where any breach could bolster near-term bullish momentum.

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.