The AUD/USD pair is trading higher, moving toward the 0.6400 mark during Monday’s Asian session, driven by a weaker US Dollar (USD). With no Federal Reserve (Fed) officials scheduled to speak this week due to a media blackout, market focus is shifting to the Reserve Bank of Australia’s (RBA) interest rate decision on Tuesday, with no change in rates expected.
US Jobs Data Supports Fed Rate Cut Expectations
US Nonfarm Payrolls (NFP) data released on Friday showed that 227,000 jobs were added in November, significantly surpassing the market expectation of 200,000 and the revised 36,000 jobs in October. While the strong employment figures suggest a resilient labor market, the Unemployment Rate rose to 4.2% from 4.1%. This, along with recent remarks from several Fed officials, points to a cooling but still healthy labor market.
The market’s immediate reaction to the NFP report was a weaker US Dollar, as investors now price in a nearly 70% probability of a 25 basis points (bps) rate cut by the Federal Reserve at its meeting on December 17-18, according to the CME FedWatch tool. The expectation of easing by the Fed is providing support for riskier currencies like the Australian Dollar.
RBA Expected to Hold Rates Steady, But Market Eyeing Future Cuts
On the Australian side, the Reserve Bank of Australia (RBA) is widely expected to keep its benchmark interest rate unchanged at 4.35% at its Tuesday meeting. RBA Governor Michele Bullock recently stated that “underlying inflation is still too high to be considering lowering the cash rate target in the near term.” However, Australia’s weaker-than-expected Q3 GDP growth has fueled speculation that the central bank could take a more dovish stance in the coming months.
Market participants have now brought forward the timeline for the first RBA rate cut to April, from the previously anticipated May. Any dovish comments from the RBA during its press conference could weigh on the Australian Dollar (AUD), especially if policymakers signal that rate cuts could be imminent.
As investors await the RBA’s decision, the AUD/USD pair is likely to remain sensitive to any shifts in tone from the central bank, which could determine whether the recent rally in the Australian Dollar has legs or if selling pressure resumes.
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