AUD extends recovery after NFP data

The Australian dollar has reacted strongly against the US Dollar (USD) on Friday, following Nonfarm Payrolls (NFP) data showing the US added 187K new jobs in July, undershooting estimates of 200K.

This data suggests a slowdown in the labor market, which could undermine high inflation and lead to lower interest rates, negative for USD. The Australian dollar had already been recovering on the back of investor sentiment, as seen in Hong Kong’s Hang Seng and Nasdaq e-mini futures.

The Australian Trade Balance in June beat expectations of 11,000M, and China Caixin Services PMI in July also beat expectations of 52.5. Australia’s largest export, Iron Ore, continues its downtrend, giving the Australian dollar a headwind.

The Reserve Bank of Australia left the policy rate unchanged at 4.1% on Tuesday morning, against market expectation for a 25-basis point hike. The decision to hold rates unchanged would provide more time to assess the impact of policy tightening to date and the economic outlook.

However, the possibility of more rate hikes in the future is not completely ruled out, as further tightening of monetary policy may be required to ensure inflation returns to target in a reasonable timeframe. The pair is in a sideways trend, unpredictable, and the probabilities do not favor either bears or bulls overall.