The Australian dollar has reversed directions on Friday. AUD/USD is trading at 0.7225, down 0.55% on the day.
US nonfarm payrolls are traditionally the highlight of the week, but the Ukraine war, spiralling inflation and surging oil prices have taken up much of the market’s attention. This has reduced some of the hype around recent NFP releases, but they still have the potential to move markets, as we’re seeing today with the US dollar.
Aussie falls as NFP beats expectations
The May nonfarm payrolls report outperformed expectations, with a gain of 390 thousand, above the forecast of 325 thousand. We’ll have to give the markets some time to digest the reading, but it’s certainly possible that the strong numbers will see investors price in more Fed tightening, which will give the US dollar a boost, especially against the risk-sensitive Australian dollar. AUD/USD has already reacted to the NFP with considerable losses. It will be interesting to see how Fed policy members react to the nonfarm payrolls release, and whether some Fed members call for the Fed to increase the pace or extent of tightening.
The Reserve Bank of Australia holds its policy meeting on Tuesday and will continue its rate-tightening cycle. The current benchmark rate is only 0.35% and the Bank is widely expected to hike by 0.35%, which would represent a compromise between a 0.25% and a 0.50% move. With inflation continuing to accelerate, the RBA is expected to raise rates to 3% or even higher, which means that we will likely see the RBA raising rates throughout the second half of the year and into 2023.
- AUD/USD is testing resistance at 0.7207. Above, there is resistance at 0.7252
- There is support at 0.7121 and 0.7076
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