The Australian Dollar (AUD) declined against major currencies following the release of disappointing labor market data for July. The AUD/USD pair fell to around 0.7120 during Asian trading hours on Thursday, erasing over 0.5% gains from the previous day, as the unemployment rate edged up to 4.5%, surpassing market expectations of 4.4% [1][2]. Employment Change dropped by 15.8K jobs, a sharp reversal from June's 80.2K gain and well below the forecasted 15.0K increase [1]. Source 2 reports a slightly different June figure of 76.3K, but both sources confirm the July contraction and consensus miss [2].
Strategists at Rabobank noted that market expectations for further Reserve Bank of Australia (RBA) tightening remain subdued, with implied policy rates priced for just 12 basis points of hikes over the next three months [1][2]. They highlighted ongoing headwinds for the AUD, including weaker Chinese demand for Australian commodities and a softer domestic economic climate, which are increasingly cited as factors undermining the currency [1][2]. The weak jobs report, combined with soft Q2 CPI inflation, led traders to pare back bets for an immediate RBA rate hike, weighing further on the AUD [2].
Despite the negative domestic data, the AUD/USD downside was somewhat limited by a softening US Dollar, which faces its own headwinds from recent economic releases and Federal Reserve policy expectations. The Fed's July meeting minutes indicated officials favored raising rates soon if inflation failed to cool, but recent monthly data points to modest price pressures, reducing the likelihood of aggressive tightening. The CME FedWatch Tool shows markets pricing in only a 32.7% probability of a Fed rate hike at the next meeting, down from 47% a month ago [1].
Technical analysis from Source 1 suggests that AUD/USD trades at 0.7110, holding above both the nine-period and 50-day EMAs, indicating a constructive near-term bullish bias. The 14-day RSI at 63.2 remains in bullish territory, hinting at supportive upside momentum, with immediate resistance at 0.7200 and support at 0.7087 and 0.7034 [1]. Meanwhile, the AUD/JPY cross attracted some sellers after the jobs report but held above the weekly low at 112.75, snapping a two-day losing streak. The downside for AUD/JPY was limited by weakness in the Japanese Yen, which faced selling pressure due to a ¥634.5 billion trade deficit and concerns about Japan's fiscal condition [2].
According to Source 3, the US Dollar was the strongest against the Australian Dollar this week, with the AUD down 0.41% versus the USD [3].
CONCLUSION
Weak Australian labor data and muted inflation have dampened expectations for near-term RBA rate hikes, putting pressure on the AUD. However, a softening US Dollar and technical support levels have limited the downside for AUD/USD and AUD/JPY. Market sentiment remains cautious, with traders closely watching for further economic signals and central bank policy developments.