Australian dollar sinks as US jobs report allays recession fears

• AUD/USD falls on robust US Non-Farm Payrolls data, reducing the likelihood of aggressive Fed rate cuts.
• Fed Chairman Powell is signaling a slower pace of easing, with markets now pricing in a 25 bps cut for November.
• Australian data shows mixed results, with strong retail sales and a trade surplus, but continued contraction in manufacturing and slowing trade activity.

The Australian dollar fell during the North American session after the September jobs report in the United States (US) suggested the Federal Reserve (Fed) would not cut rates by 50 basis points (bps) at its November meeting. AUD/USD is trading at 0.6796, down over 0.60%.

AUD/USD extended losses following September’s monstrous US non-farm payrolls report, which lowered the unemployment rate. Average hourly earnings were mixed, though overall the data relieved the Fed of aggressive rate cuts.

In September, the Fed cut rates by 50 bps. Swap markets showed investors had earlier considered another of the same size in the November or December meeting. However, Fed Chairman Jerome Powell pushed back against that stance on Monday, saying officials had forecast 50 bps of easing in total at the end of 2024 and that the US central bank was in no rush to cut rates.

According to data from the CME FedWatch Tool, markets saw a 25 bps discount at the November meeting on Fed interest rate probabilities.

Apart from this, Australia’s data witnessed a solid Retail Sales report and the August Trade Balance printed a surplus. While these conditions could prevent the Reserve Bank of Australia (RBA) from cutting rates, business activity in the manufacturing sector, via the Judo Bank Manufacturing PMI, contracted for eight consecutive months.

On the other hand, the Judo Bank Services PMI slowed sharply, while building permits fell, suggesting an ongoing economic slowdown.

Next week, Australia’s economic file will include business and consumer confidence data, RBA speakers and the final minutes of RBA meetings. For the US, the program will feature data on inflation, jobless claims and consumer sentiment from the University of Michigan.

Daily Market Reasons: Australian dollar depreciates on US data, geopolitical risks

• The Australian dollar is likely to remain under pressure due to a number of factors. Geopolitical risks such as developments in the Middle East over the weekend could affect risk appetite for the AUD.
• The Australian’s economic file will include NAB Business Confidence and Westpac Consumer Confidence for September and October respectively. After that, traders watch the RBA Hauser, Kent and Hunter speeches.
• US non-farm payrolls rose by 254,000 in September, significantly beating the 140,000 estimate and August’s upwardly revised figure of 159,000. The unemployment rate fell from 4.2% to 4.1%, less than expected.
• Average hourly earnings in September rose 0.4% on the month, down from 0.5% in the previous month but beating forecasts of 0.3%.
• On an annual basis, hourly earnings rose 4% in the 12 months to September, beating estimates and improving on August figures of 3.8% and 3.9%.
• Market participants have ruled out a 50 bps cut from the Fed. According to CME FedWatch Tool data, the odds of a 25bps cut are 95%, with just a 5% chance of rates being kept unchanged.

Technical analysis: Australian dollar extends losses below 0.6800

Despite the return below 0.6800, AUD/USD remains bullish. Momentum is mixed with the Relative Strength Index (RSI) remaining bullish but indicating a dip into bearish territory.

AUD/USD could accelerate its losses if it breaks the September 6 peak at 0.6767. Once relented, the next area of ​​demand will be the 50-day simple moving average (SMA) at 0.6712.

On the other hand, if buyers lift AUD/USD above 0.6800, the first supply area will be the October 1, 2024 low of 0.6856. A breach of the latter will expose 0.6900 before retesting the year-to-date high of 0.6934.