AUD fights back amid pause in risk asset sell-off

Daily Currency Update

The Australian dollar found support through trade on Wednesday, pushing back on attempts to extend the recent downturn below US$0.63 amid a pause in the bond market and risk asset sell-off. Having touched lows at US$0.6287, the AUD rallied overnight, moving back above US$0.63 and toward session highs just south of US$0.6340. Markets appeared content in taking stock, affording investors a reprieve after the massive sell-off across bond markets. US Services ISM data printed in line with expectations while ADP employment data came in softer than anticipated. While not an entirely accurate marker of final non-farm payroll numbers, the softer read does speak to the narrative of a weakening labour market, and when coupled with a downturn in oil prices, easing near-term inflation concerns and the risk of a US government shutdown, markets are preparing for the possibility the Fed will not raise rates again this year.

Attention now turns to Friday’s Non-Farm Payroll print. Labour market performance will prove key in determining the near-term narrative. A robust print and labour market resilience will all but guarantee another Fed rate hike in 2023 but a softer read will force the market to take stock and may undermine recent USD strength.