Aussie Dollar Climbs on Robust Employment, Soft Fed Stance
The Australian dollar reached a one-week peak, driven by robust jobs data that showed an unexpected dive in the unemployment rate to 3.7% from 4.1%, surpassing market expectations and reducing the likelihood of early policy easing. This positive employment data fueled a 0.5% rise in the Aussie dollar to $0.6620 AUDUSD, and a climb against the yen to a nine-year high of 99.72 yen AUDJPY. The strong labor market figures have assuaged concerns about rising unemployment and have reinforced the Reserve Bank of Australia's (RBA) data-dependent stance on economic policy, with the central bank maintaining its current rate at 4.35%.
In the United States, the Federal Reserve's decision to hold its projection of three 25 basis-point rate cuts in 2024 contributed to a weaker U.S. dollar, further supporting the AUD's rise. Federal Reserve Chair Jerome Powell's dovish comments also led to softer U.S. Treasury yields, contributing to the USD's decline. As a result, the AUD/USD pair advanced, breaking above the 0.6600 level, and the currency is now targeting the 61.8 Fibonacci retracement of the December-February drop at 0.6707.
Meanwhile, the yen also saw a significant increase due to a combination of a weakening U.S. dollar and market anticipation of further rate hikes from the Bank of Japan later in the year, bolstered by improved business confidence within the Japanese economy. Markets are now recalibrating their expectations for the RBA's future moves, with the odds of a rate cut at the August 6th meeting being revised down from a 75% to a 62% chance. The global currency market is closely watching other central banks, including the Bank of England, which is anticipated to make a decision on interest rates, potentially impacting currency valuations further.
