Australian Dollar extends losses

• AUD/USD touches 9-month low.

• Australian job growth slips.

• Fed minutes note concern about inflation.

The Australian dollar has been on a nasty slide. Earlier, AUD/USD fell as low as 0.6364, a nine-month low, before recovering. In the European session, AUD/USD is trading at 0.6433, up 0.16%.

Australia’s job growth slides

Australia’s labour market has been surprisingly robust in the face of the central bank’s aggressive tightening, but cracks have finally appeared. Employment in Australia fell by 14,600 in July, compared to a downwardly revised gain of 31,600 in May and missing the consensus estimate of 15,000. The unemployment rate rose to 3.7% in July, up from the previous reading of 3.5% and above the estimate of 3.6%. This is the highest level since April.

The Reserve Bank of Australia has repeatedly stated that its rate decisions will be based on the data, and inflation and employment reports are likely the most critical readings for the RBA. July’s soft jobs report has dragged the Aussie lower and should cement a third successive pause from the RBA at the September meeting. The benchmark cash rate currently stands at 4.10% and the futures markets have priced in a 50-50 chance of one more quarter-point hike before the end of the year. If inflation continues to head lower, the RBA will be able to look at trimming rates sometime in 2024.

The Federal Reserve remains concerned about high inflation and said that additional rate hikes might be needed, according to the minutes of the July meeting. At the meeting, the Fed raised rates by 0.25%, a move that was widely anticipated. Most members “continued to see significant upside risks to inflation, which could require further tightening of monetary policy”.

Inflation has fallen to 3.2%, but members agreed inflation is “unacceptably high”. Most members saw a  significant upside risk to inflation, but interestingly, the minutes noted that there is uncertainty over the future rate path since there are also signs that inflationary pressures could be easing.

AUD/USD technical

• AUD/USD is testing support at 0.6402. This is followed by support at 0.6319.

• 0.6449 and 0.6532 are the next resistance lines.