Australian Dollar retreats as weak jobs data weighs on RBA rate outlook

• AUD/USD declines after Australian employment figures came in well below expectations in July.
• Australia lost 15.8K jobs, while the Unemployment Rate rose to 4.5%.
• Falling US Treasury yields and US Dollar weakness are limiting the pair’s downside.

AUD/USD declines 0.22% on Thursday and trades around 0.7110 at the time of writing. The Australian Dollar (AUD) remains under pressure after data showed an unexpected deterioration in Australia’s labor market in July, although persistent weakness in the US Dollar (USD) is helping to limit the pair’s losses.

The Australian Bureau of Statistics (ABS) reported that the Australian economy lost 15.8K jobs in July, while markets had expected an increase of 15K. Australia’s Unemployment Rate rose to 4.5% in July, from 4.4% in June and above market expectations for an unchanged reading of 4.4%. 

The weaker-than-expected figures ease expectations that the Reserve Bank of Australia (RBA) may need to raise interest rates further to combat inflationary pressures. This outlook contrasts with comments from RBA Deputy Governor Andrew Hauser, who warned on Wednesday that inflation risks remain tilted to the upside and that tighter monetary policy could be necessary to bring inflation under control.

BBH’s Elias Haddad argues that “the continued easing in labor market conditions reinforces the case for the RBA to remain on hold for some time,” with softer employment dynamics reducing pressure for further tightening. At the same time, he highlights that “Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds,” suggesting the Aussie Dollar still enjoys solid fundamental support despite the weaker labor backdrop.

The decline in AUD/USD remains limited, however, by weakness in the Greenback. The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of six major currencies, remains below 99.00 on Thursday after touching a three-month low on Wednesday.

The recent decline in US Treasury yields partly weighs down the US Dollar. The United States (US) Department of the Treasury announced an increase in its liquidity-support buyback operations for longer-dated government securities following the sharp rise in borrowing costs seen in recent days. The Treasury plans to double at least the size of some operations covering securities with maturities ranging from 10 to 30 years.

The announcement allowed the 30-year US Treasury yield to retreat from the 5.30% threshold reached earlier this week, its highest level since 2007. However, both 10-year and 30-year yields edge slightly higher on Thursday, limiting downward pressure on the US Dollar for now.

The outlook for US monetary policy also remains in focus. Minutes from the Federal Reserve’s (Fed) July meeting, released on Wednesday, showed that many policymakers believe tighter monetary policy could be necessary if inflation fails to slow sufficiently. Some officials also questioned whether financial conditions are restrictive enough to bring inflation back toward the 2% target.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7110, holding a mildly bullish near-term bias as it consolidates above the 100-period simple moving average (SMA) at 0.7101 and the 200-period SMA at 0.7081. The cluster of underlying demand around these moving averages, together with nearby horizontal support at 0.7095, suggests dips are being absorbed, while the Relative Strength Index (14) at 47 points to balanced momentum after unwinding earlier overbought readings.

On the topside, immediate resistance appears at 0.7130, with a break exposing the next barrier at 0.7200. On the downside, initial support is seen at the current trading area around 0.7110, followed by the 100-period SMA at 0.7101 and the horizontal level at 0.7095, before deeper support emerges near the 200-period SMA at 0.7081 and 0.7067.

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