Australian Dollar gains as strong Job Ads, resurgent inflation signal hawkish RBA
- Australia’s ANZ–Indeed Job Ads rose 2.0% in July, showing broad-based strength across states and industries.
- The TD-MI Inflation Gauge jumped 1.0% in July, marking its first increase since April.
- RBA Governor Bullock warned high underlying inflation could rise further, delaying prospective policy easing.
AUD/USD rises after two days of losses, hovering around 0.7010 during the Asian hours on Tuesday. The Australian Dollar (AUD) gained ground following the release of positive employment data, which showed that ANZ–Indeed Job Ads increased by 2.0% month-over-month in July. This rebound reversed a 0.2% decline from the previous month, marking the fourth monthly rise of the year. According to ANZ Senior Economist Catherine Birch, the growth was broad-based across both states and industries, reflecting robust labor demand even as the overall economy cools.
Meanwhile, renewed inflationary pressures are further supporting expectations of a cautious stance by the central bank. Data released on Monday showed the TD-MI Inflation Gauge rising 1.0% month-on-month in July, recovering from a 0.4% drop in June and marking its first gain since April. This uptick aligns with the Reserve Bank of Australia’s (RBA) June Meeting Minutes, which projected that underlying price pressures would intensify mid-year.
RBA Governor Michele Bullock recently emphasized that underlying inflation remains too high and warned of potential further increases driven by higher oil prices stemming from the conflict in Iran, strengthening the case for the RBA to hold off on policy easing.
RBA flags persistent inflation and resilient jobs market
BNY’s Geoff Yu notes that RBA Assistant Governor Sarah Hunter acknowledged that “inflation remains above the 2-3% target band” and stressed the central bank must “keep pressure on price growth so higher inflation expectations do not become entrenched.” On the labour market, Hunter judged that conditions are “still somewhat tight,” with job growth having held up “not too badly” over the first half of the year, underscoring ongoing resilience in employment despite softer headline price dynamics.
The AUD/USD pair gains ground as the US Dollar (USD) struggles on easing geopolitical tensions amid lingering hopes for a diplomatic breakthrough between the United States (US) and Iran. US President Donald Trump announced that his latest offer of talks is a "last chance" for Iran, following his decision to call off a major attack on the Islamic Republic. Trump expressed expectations that negotiations would begin shortly to reopen the Strait of Hormuz and address US concerns regarding Iran's nuclear program.
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.