The Australian Dollar Loses Momentum as US Dollar Strengthens

The Australian Dollar Loses Momentum as US Dollar Strengthens

The AUD/USD pair is facing selling pressure during the early Asian session on Monday as the US Dollar (USD) gains strength. This is primarily due to the release of better-than-expected US job data, which has led to an uptick in the USD, thereby weighing on AUD/USD. This article will analyze the factors contributing to the current situation and highlight upcoming events that could impact the pair.

The US Bureau of Labor Statistics recently reported that the US economy added 353,000 jobs in January, surpassing the previous reading of 333,000 and the market consensus of 180,000. Although this indicates a strong job growth, it also suggests that the US Federal Reserve (Fed) will need to maintain higher interest rates for a longer period than initially anticipated. As a result, markets have adjusted their expectations, with the probability of a rate cut in May decreasing to approximately 85% from being fully priced the day before. Furthermore, the overall forecast for rate cuts in 2024 has also been reduced. The market’s response has contributed to the strengthening of the USD and acts as a headwind for the AUD/USD pair.

On the Australian front, recent data from Judo Bank and S&P Global revealed improvements in the nation’s Composite Purchasing Managers Index (PMI) and Services PMI for January. The Composite PMI rose to 49.0 from 48.1 in December, while the Services PMI climbed to 49.1 from 47.9 in the previous reading. Despite these positive developments, the Reserve Bank of Australia (RBA) is expected to keep its Cash Rate Target unchanged at 4.35% during its policy meeting. RBA Governor Bullock will also speak at a press conference to shed light on the decision and the monetary policy outlook. The hawkish remarks from the RBA could potentially limit the downside of the AUD against its counterparts.

Traders will closely monitor the release of the January Australian TD Securities Inflation, Chinese Caixin Services PMI, and US ISM Services PMI data on Monday. These events will provide further insights into the economic performance of Australia, China, and the US, which can subsequently impact the AUD/USD pair. Of particular importance is the Chinese Caixin Services PMI, as China is one of Australia’s major trading partners. Any significant changes in the PMI data could influence the value of the Australian Dollar.

The AUD/USD pair is currently under selling pressure as the USD strengthens following better-than-expected US job data. This has led to revised expectations of the Fed’s interest rate policies, resulting in a boost for the USD and acting as a headwind for the AUD/USD pair. However, positive economic data in Australia and hawkish remarks from the RBA could potentially limit the downside of the AUD. Traders will closely monitor upcoming events, including the release of economic data, to identify trading opportunities around the AUD/USD pair.

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