Australia’s September Trade Surplus expanded notably to A$2,826M, propelled by increasing exports and decreasing imports. The US Dollar experienced a decline as concerns over political gridlock intensified in the wake of a Democratic sweep in the midterm elections. Resilient US economic data reinforces the Federal Reserve’s hawkish position, limiting the downside potential of the Greenback. AUD/USD extends its gains for the second consecutive day, trading around 0.7010 during Asian hours on Thursday. The pair gained ground as the Australian Dollar inched higher following the release of Australia’s latest Trade Balance report.
Australia’s trade surplus expanded markedly to A$2,826 million month-over-month in September, an increase from a revised surplus of A$185 million in the prior reading, which was initially reported as A$495 million. Australian exports experienced a 2.3% increase in September, building on a revised 3.1% rise in August (originally reported as 3.7%). In contrast, imports declined by 3.3% after a revised growth of 6.2% in the preceding month (initially noted as 5.8%). Further upward momentum for the AUD/USD pair originated from widespread weakness in the US Dollar. The Greenback faced significant selling pressure following a Democratic sweep in the midterm elections, which resulted in control of both houses of Congress. This development has raised concerns regarding the potential for political gridlock in Washington. Additionally, market expectations of a resolution to the Middle East conflict following the election outcome triggered a sharp drop in oil prices, adding further pressure on the USD.
Despite these challenges, the US Dollar’s depreciation may be constrained by robust domestic economic indicators. Private-sector employment increased by 86,000 in October, as reported by ADP, surpassing the anticipated 69,000. However, the figure for September was revised downward to 86,000 from the previous 90,000. Meanwhile, the ISM Services PMI experienced a minor decline to 54.5 from 54.9, falling just short of the anticipated 54.8, yet it continued to reside comfortably within the realm of expansion. These robust economic indicators afford the Federal Reserve the latitude to uphold its hawkish position in its endeavour to bring inflation back to the 2% target. According to the CME FedWatch Tool, markets are currently pricing in an 80% probability of another rate hike in December.
Investors are currently focusing on forthcoming US economic indicators, notably the weekly Initial Jobless Claims scheduled for Thursday and the Nonfarm Payrolls report set for Friday. Analysts report that the “USD is weakening broadly in response to Tuesday’s US midterm election results,” with the pattern of moves across majors pointing to a clear improvement in risk sentiment. They note that the relative performance within G10 FX “is suggestive of risk appetite,” as the Mexican Peso leads with “a near-1% gain on the day” and the NZD, NOK and AUD are “up between 0.6-0.7%,” while even the EUR and GBP “show relatively sizeable 0.5% rallies from Tuesday’s close.”
