Australian Dollar declines following weak labor data

• AUD/USD faces downward pressure as a disappointing domestic labor report drags the Australian Dollar lower.
• Australia's Unemployment Rate rose to 4.5% in July, surpassing market expectations of 4.4%.
• Fed Meeting Minutes showed officials favored raising rates soon if inflation persists, after holding the 3.5%–3.75% target steady.

AUD/USD depreciates after registering over 0.5% gains in the previous day, trading around 0.7120 during the Asian hours on Thursday. The AUD/USD pair faces downward pressure as the Australian Dollar (AUD) slips in response to a weak domestic labor market report.

Australia's Unemployment Rate edged up to 4.5% in July, exceeding market expectations of 4.4%. Compounding the currency's weakness, Employment Change plummeted by 15.8K jobs, a sharp contraction compared to June's 80.2K gain and well below the projected 15.0K growth.

AUD under pressure as Rabobank flags limited RBA repricing and China headwinds

Strategists at Rabobank highlight that market expectations for further RBA tightening remain modest, with "market implied policy rates ... currently priced for just 12 bps of rate hikes on a 3-month view." They note that sentiment around the Aussie is being challenged by a growing list of headwinds, with "weaker Chinese demand for Australian commodities and a softer domestic economic climate" increasingly cited in market commentary as factors "potentially undermining the AUD going forward."

However, the AUD/USD pair's downside may be limited by a softening US Dollar (USD), which faces headwinds from recent economic data and Federal Reserve policy expectations. Minutes from the Fed's July meeting revealed that officials favored raising interest rates soon if inflation failed to cool, having kept the benchmark rate steady at 3.5%–3.75%.

While inflation indicators remain above the 2% target, recent monthly data points to modest price pressures, softening the case for aggressive tightening. These signs of cooling inflation have driven down expectations for an imminent rate increase. According to the CME FedWatch Tool, markets are now pricing in just a 32.7% probability of a Fed rate hike at the next meeting, down from 47% a month ago.

Technical Analysis:

In the daily chart, AUD/USD trades at 0.7110. The pair holds above both the nine-period and 50-day Exponential Moving Averages (EMAs), which suggests a constructive near-term bullish bias as price extends away from its recent consolidation band. The 14-day Relative Strength Index (RSI) at 63.2 remains in bullish territory without yet reaching overbought extremes, hinting that upside momentum is still supportive while broader Fed sentiment, as captured by the FXS Fed Sentiment Index, stays comparatively subdued versus its earlier peaks.

The initial barrier lies at the psychological level of 0.7200. On the downside, immediate support emerges at the nine-period EMA around 0.7087, followed by a deeper technical floor at the 50-period EMA near 0.7034, where buyers would be expected to reappear on pullbacks.

(The technical analysis of this story was written with the help of an AI tool. Know more.)