AUD/USD encounters downward pressure as a lacklustre domestic labour report weighs on the Australian Dollar. Australia’s unemployment rate increased to 4.5% in July, exceeding market expectations of 4.4%. Fed Meeting Minutes indicated that officials preferred to raise rates in the near term should inflation remain persistent, following a steady target range of 3.5%–3.75%. AUD/USD has experienced a depreciation following a gain of over 0.5% the previous day, currently trading around 0.7120 during the Asian hours on Thursday. The AUD/USD pair is experiencing downward pressure as the Australian Dollar declines in reaction to a lacklustre domestic labour market report.
Australia’s unemployment rate increased to 4.5% in July, surpassing market expectations of 4.4%. Compounding the currency’s weakness, Employment Change fell by 15.8K jobs, marking a significant contraction compared to June’s 80.2K gain and falling short of the anticipated 15.0K growth. Strategists highlight that market expectations for further RBA tightening remain modest, with “market implied policy rates … currently priced for just 12 bps of rate hikes on a 3-month view.” They note that sentiment around the Aussie is being challenged by a growing list of headwinds, with “weaker Chinese demand for Australian commodities and a softer domestic economic climate” increasingly cited in market commentary as factors “potentially undermining the AUD going forward.”
However, the AUD/USD pair’s downside may be constrained by a weakening US Dollar, which encounters challenges from recent economic data and expectations surrounding Federal Reserve policy. Minutes from the Fed’s July meeting indicated that officials expressed a preference for increasing interest rates in the near future should inflation not show signs of abating, following a period of maintaining the benchmark rate at 3.5%–3.75%. While inflation indicators remain above the 2% target, recent monthly data points to modest price pressures, softening the case for aggressive tightening. These indicators of easing inflation have led to a reduction in forecasts for a forthcoming rate hike. According to the CME FedWatch Tool, markets currently assign a probability of 32.7% to a Fed rate hike at the next meeting, a decrease from 47% a month prior.
In the daily chart, AUD/USD is currently positioned at 0.7110. The pair maintains its position above both the nine-period and 50-day Exponential Moving Averages, indicating a favourable near-term bullish sentiment as the price moves away from its recent consolidation range. The 14-day Relative Strength Index at 63.2 indicates a position within bullish territory, not yet entering overbought extremes. This suggests that upside momentum continues to be favourable, while the broader Fed sentiment, as reflected by the FXS Fed Sentiment Index, remains relatively muted compared to its previous highs. The initial barrier is positioned at the psychological level of 0.7200. On the downside, immediate support emerges at the nine-period EMA around 0.7087, followed by a deeper technical floor at the 50-period EMA near 0.7034, where buyers would be expected to reappear on pullbacks.
