AUD/USD threatens 0.6500 as the US labour market softens

The AUD/USD pair increased at 0.6490 and then held above the 0.6473 20-day SMA. At the time of writing, it is trading at 0.6474. Investors wager on a less aggressive Fed because the US labour markets are still weak. US bond yields hit a three-week low.

The AUD/USD gained momentum on Wednesday because the USD is trading poorly relative to most of its competitors as a result of recent bad employment data. Australia’s dismal housing figures were announced during the Asian session, and the Monthly Consumer Price Index (CPI) decreased to 4.9% YoY.

The ADP Employment Change figures from the US missed the consensus in August. The figure came in at 177,000, while the markets expected 195,000, significantly lower than the last reading of 371,000. In addition, the Q2 Gross Domestic Product (GDP) was revised downwards to 2.1% YoY.

The immediate reaction to the lower-than-expected ADPs and JOLTs from Tuesday was hopes that the tightening cycle from the Fed would end, which fueled a sharp decline in the 2,5 and 10-year yields to their lowest in three weeks. However, the CME FedWatch tool reflects that the odds of a hike in the November meeting slightly fell, but they remain high, around 44%. In addition, investors are pricing in that the Fed will cut rates sooner, in June 2024, which also weakens the USD.

That being said, before the September 20 meeting, the Fed will get an additional Nonfarm Payrolls (NFP) report this Friday, a Core Personal Consumption Expenditures (PCE) reading on Thursday and a Consumer Price Index (CPI) figures from August next Friday. Those inflation figures will likely weigh more on the Fed’s upcoming decisions.