AUD/USD turns upside down in the aftermath of US NFP

AUD/USD tumbles to near 0.6700 after the release of the US NFP data for August.
Disappointment from US job growth data boosts Fed interest rate cut hopes.
RBA Bullock’s hawkish interest rate guidance failed to uplift the Australian Dollar.

The AUD/USD pair surrenders its intraday gains and turns negative in Friday’s North American session. The Aussie asset slumps to near 0.6700 in the aftermath of the United States (US) Nonfarm Payrolls (NFP) data for August, which increased buying interest in the US Dollar (USD) significantly.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, reverses its downside move and climbs to near 101.40.

The US NFP report indicated that the job demand remained weaker than expected. Fresh payrolls came in lower at 142K than expectations of 160K but higher than July’s release of 89K, downwardly revised from 114K. The Unemployment Rate fell to 4.2%, as expected, from the prior release of 4.3%.

Disappointing US job data has given a green signal to the Federal Reserve (Fed) to start reducing the policy-easing process this month. Weak US job data has also prompted market expectations that the Fed could begin cutting interest rates aggressively.

According to the CME FedWatch tool, the likelihood for the Fed to begin reducing interest rates by 50 basis points (bps) to 4.75%-5.00% has increased to 45% from 30% recorded a week ago.

In the Asia-Pacific region, the Australian Dollar (AUD) performs weakly despite firm speculation that the Reserve Bank of Australia (RBA) is unlikely to cut interest rates this year. Prospects of RBA keeping interest rates at their current levels by the year-end strengthened after RBA Governor Michele Bullock’s hawkish interest rate guidance. Bullock said in her speech at the Anika Foundation on Thursday, "If the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term.”

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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