AUD/USD Weakens; Australian Labor Data Weighs on the Aussie

The AUD/USD pair closed Thursday's (Aug 20) trading session down 0.14% at 0.7113, having traded within a range of 0.7103 to 0.7133. The Australian dollar lost momentum after domestic employment data indicated a softening labor market, while the US dollar found support from a rebound in Treasury yields.

Pressure on the Aussie mounted after Australia unexpectedly lost 15,800 jobs in July—contrary to market expectations of a gain of approximately 15,000 jobs. The unemployment rate also rose to 4.5%, its highest level since late 2021 and above the forecast of 4.4%. Following the data release, the Australian dollar briefly fell about 0.2% to the US$0.7111 level.

A weakening labor market reduces pressure on the Reserve Bank of Australia (RBA) to raise interest rates again in the near term. The RBA had previously held rates steady at 4.35% following three hikes earlier this year. Markets now view the likelihood of a rate hike at the next meeting as relatively low, although the possibility of tightening before year-end remains open should inflation accelerate again.

Externally, the AUD/USD pair also faced pressure as US Treasury yields rose again—with the 10-year yield reaching around 4.70%—while the dollar index strengthened slightly to 98.89. The combination of weak Australian economic data and rising US yields leaves the AUD/USD vulnerable to further downward pressure. However, rising commodity prices and global inflation risks could shift RBA policy expectations once more; consequently, the pair's future direction will depend heavily on Australian inflation trends and the strength of the US dollar. (CP)