After closing in the red in the previous session, the Australian dollar gained some positive traction in early trade on Friday. The Aussie dollar US dollar exchange rate pushed above US$0.6900. A mixed US jobs report pulled the pair briefly lower, before it rebounded again.
The Australian dollar strengthened in early trade after data showed that Chinese manufacturing activity grew at the fastest pace in two and a half years in October. The Chinese Caixin manufacturing pmi posted a reading of 51.7 in October, up from 51.4 in September. This is the third straight month that the reading has been above 50, showing expansion. The data suggests that the Chinese manufacturing sector is on the road to recovery amid the ongoing US — China trade dispute.
This is good news for the Chinese economy. The Australian economy is closely linked to China, its principal trading partner. A stronger Chinese economy could boost Australian exports and the economy, lifting the value of the Australian dollar.
128,000 Jobs Created
The US dollar spiked higher following better than forecast US job creation. The keenly watched US non-farm payroll report showed that 128,000 jobs were created in the US in October. This was marginally down from September’s 136,000 but significantly higher than the 85,000 that city analysts had predicted. As expected, unemployment ticked higher to 3.6%, up from 3.5% the month previous. Average hourly earnings fell slightly short of expectations at 0.2% increase month on month, instead of the 0.3% increase forecast. However, on an annual basis, average earnings remained steady at 3%.
The strong job creation number comes despite the General Motors strike which caused a significant drop in manufacturing jobs. Upward revisions were also made to the previous two months to the tune of 95,000 jobs.
The data shows that the US labour market is doing well. It also indicates that Federal Reserve Chair Jerome Powell was right to put rate cuts on pause. However, with average earnings looking a little lacklustre, it could be a while until inflation picks up. This means whilst a rate cut is off the cards, so is a rate rise. This is weighing on demand for the greenback.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 USD = 0.6784 AUD
Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.
Or, if you were looking at it the other way around:
1 AUD = 1.4739 USD
In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.