AUD/USD Battered Ahead of Federal Election

The Australian dollar dropped to fresh 4-month lows against the US dollar in early trading on Friday. A combination of factors including disappointing labor data, the prospect of an RBA rate cut and US/China trade tensions have all weighed on the Aussie this week.

Unemployment Rises to 8-Month High

On Thursday the Australian Bureau of Statistics reported that Australia’s unemployment rate unexpectedly rose to 5.2% in April, pushing higher for a second consecutive month. 28,400 new jobs were created in April, beating expectations. However, the increase was driven by part-time roles, with full-time positions falling by 6,300.

Rate Cut Expectations

Disappointing jobs data, slowing economic expansion and sluggish wage growth have increased anticipation that the RBA will lower rates at its June 4th policy meeting. The Australian central bank held its cash rate at a record low 1.5 per cent at its May meeting and stated at its April meeting that if inflation did not rise and unemployment increased, an interest rate cut would “likely be appropriate”.

US/China Trade

The recent escalation of the trade war between the United States and China has dampened risk appetite and pressured the Australian dollar and other commodity currencies. Additionally, China’s industrial production and retail sales figures missed estimates in April. China is Australia’s largest trading partner and soft economic data threatens demand for Australian commodities such as iron ore and coal.

Conclusion

In addition to the June RBA meeting, investors will be eyeing the Australian federal election, scheduled to take place on Saturday May 18th. Looking at the daily chart above we can see that AUD/USD is on the back foot with no major support level until the January flash crash low of .6750.