The AUD/USD plunged on Thursday as employment data came well below expectations for April. This suggests that the Reserve Bank will have less room to continue increasing interest rates. The U.S. dollar remained close to a seven-week high as President Joe Biden and top Republican Kevin McCarthy made efforts to prevent a potential debt default. Meanwhile, investors reduced their expectations for Federal Reserve easing.
AUD/USD – RBA’s Pause likely following Weak Employment
Australia experienced a surprise decline in employment during April, after two consecutive months of significant growth. Additionally, the unemployment rate increased slightly, indicating that the extremely strong job market may be slowing down.
According to the Australian Bureau of Statistics, the number of people employed decreased by 4,300 in April, compared to the revised increase of 61,100 in March. This went against the market’s expectation of a rise of 25,000.
Australia’s unemployment rate rose unexpectedly to 3.7%, whereas the market predicted no change at 3.5%, the lowest rate in the past 50 years.
Weaker-than-expected data increased the likelihood that the Reserve Bank of Australia (RBA) would not raise interest rates next month. Analysts say that the recent employment figures in Australia may hinder any future increases.
The minutes of the RBA’s May meeting revealed that the central bank’s recent decision to raise borrowing costs was a delicate balance in an effort to reduce the risk of inflation becoming too high and persistent in the economy.
The Reserve Bank of Australia (RBA) raised interest rates by an accumulative 375 basis points to 3.85%, the highest level in the past 11 years. The bank unexpectedly increased rates earlier this month due to worries about potential inflationary pressures affecting the economy.
The AUD/USD is 0.41% down at 0.66318, moving further away from its 3-month peak reached earlier this month at 0.6818.
The Australian currency (AUD) was also impacted negatively by signs indicating that China, Australia’s largest trading partner, might be undergoing a weaker economic rebound. Additionally, remarks from officials of the US Federal Reserve suggesting further increases in interest rates weighed on the AUD/USD currency pair.
USD firms on Hopes for a Potential Debt Deal
The dollar steadied near its highest levels in two month, above 103 on Thursday due to increasing optimism that the US government will reach an agreement on the debt ceiling and prevent a default.
Late on Wednesday, President Joe Biden and House Speaker Kevin McCarthy expressed confidence that the US government will not default on its debt after a lengthy standoff.
The US Dollar Index (DXY), which gauges the USD’s strength against six major rivals, is up for the third consecutive session by 0.21% regaining the 103 handle.
The greenback was also supported by hawkish comments from Federal Reserve officials earlier this week.
Austan Goolsbee, the President of Chicago Fed, stated that it is too early to discuss cutting interest rates. On the other hand, Loretta Mester, the President of Cleveland Fed, claimed that the Central Bank cannot maintain steady rates since inflation is not subsiding.
According to the market’s expectations, there is a 20% chance of the Federal Reserve increasing its interest rate at its June meeting. This is different from the previous month when the market was anticipating a rate cut.
The investors are waiting for the weekly jobless claims data to evaluate the performance of the U.S. job market. Weekly unemployment claims are expected to ease to 253K last week, from 264K reported the week before.
USD/JPY rose 0.07% to 137.77. The Japanese yen is approaching its lowest levels against the greenback since March. This is attributed to global economic uncertainties and the Federal Reserve’s hawkish outlook, which caused investors to prefer the safe haven USD.
The EUR/USD is supported by the anticipation that the European Central Bank will keep increasing its interest rates to tackle inflation. The pair has experienced a 0.2% decrease but is still near its 12-month high of $1.1 attained earlier this month.
