After a miserable end to the week, the AUD/USD is steady on Monday and is trading at 0.6912.
The January US nonfarm payrolls were a blowout that shocked the markets. The economy created a stunning 517,000 new jobs, crushing the estimate of 185,000 and well above the previous read of 260,000. The unemployment rate fell from 3.5% to 3.4%, its lowest rate since 1969. There was more positive news as the ISM Services PMI climbed back into expansion territory with a reading of 55.2, up from 49.2 and above the forecast of 50.4 points.
The US dollar surged against most of the major currencies after the employment report, while equity markets were down. The Australian dollar plunged by 2.2% on Friday. There had been speculation that the Fed might deliver a “one and done” rate hike in March, which would end the current rate-hike cycle, but the job report has poured cold water on those hopes.
The labor market is running much too hot for the Fed’s liking, and wage growth remains an important driver of inflation. Fed member Mary Daly called the employment release a “wow number” and said that the Fed’s December forecast of a peak rate of 5.1% was a “good indicator” of Fed policy.
RBA expected to raise rates
The RBA will be in the spotlight on Tuesday with its monthly rate announcement. The central bank is expected to raise rates by 25 basis points, bringing rates to 3.35%, a 10-year high. This would mark a fourth straight hike of 25 bp as the RBA continues to fight inflation with steady but modest rate hikes.
Some signs rising interest rates are starting to bite the economy, with today’s retail sales release of -3.9% the latest reminder. The cash rate is projected to peak around 3.6%, although it could rise further if inflation remains stickier than expected. The employment market remains robust, allowing the central bank to raise rates as it sees fit.
AUD/USD Technical
- AUD/USD faces resistance at 0.6962 and the round number of 0.7000
- 0.6841 and 0.6761 are providing support