AUD/USD Turns Bearish Ahead Of Friday’s Nonfarm Payrolls Announcement
The AUD/USD tanked on Wednesday due to the low trading momentum that has prevailed last week perhaps due to the various different types of market data reports that were to be announced.
Positive data almost always influence a positive shift in the financial markets and that was the same case with the AUD/USD when the Australian AIG manufacturing index was announced. The latter gained to 54.8 according to the announcement, and this means that the Australian Manufacturing sector has been expanding. It was also announced that the US commodity market grew by 14.4% but one of the major announcements was that ADP nonfarm payrolls surged to 275,000, a massive gain from the previously reported 181,000.
The Australian economy’s performance
On the negative side of the spectrum, the ISM Manufacturing PMI was unable to hit the estimated 55.0 points, after slowing down to 52.8 points. More market data is expected before the end of the week including the FOMC release statement, Australia’s building approvals and post-unemployment claims in the U.S. The Aussie economy has been taking a beating from the market uncertainties that were caused by the U.S.-China trade war.
China is the major trading partner for Australia and this explains why the land down under was so affected by the U.S.-China trade war. China’s economy has been experiencing a slowdown, thus resulting in soft manufacturing data in April. It also explains why the Manufacturing PMI
fell short of its estimate. However, China’s economy has been demonstrating signs of stability which would subsequently lead to better performance for Australia's economy. This would also have a direct impact on the performance of the AUD/USD currency pair.
Meanwhile, on the state side, the USD lost some ground due to the release of underwhelming market data ever since the Chicago PMI, PCE and GDP data was released. Traders will likely be concerned about the coming week’s Reserve Bank of Australia’s announcements especially after the ISM manufacturing data failed to reach its estimated figure. Analysts are concerned about the likelihood of the market turning more volatile although that can be avoided if the Federal Reserve doesn’t make drastic changes.
There are also concerns about the Federal Reserve turning more dovish especially with the low inflation levels that have been reported. This has further led to speculation that there might be a rate cut within the next few months. This would likely be the case if the Federal Reserve feels that the economic recovery might be at risk of slowing down.
One thing that is almost certain is that the RBA would not want to risk influencing the outcome of the upcoming Federal elections scheduled to take place this month. Implementing a rate cut would pave the way for the opposition to use the rate cut as an argument against the incumbent government’s management of the economy. It is therefore wise of the RBA to avoid an issue that would potentially cause claims that it is acted on political interests.