Australian dollar dips against US dollar amid fed hawkish tone and weak domestic jobs data

Daily Currency Update

The Australian dollar (AUD) continued its downward trajectory against the US dollar (USD) on Friday, marking the third consecutive day of declines for the AUD/USD currency pair. As the week draws to a close, the pair is poised to finish in negative territory for the first time in four weeks, reflecting the ongoing strength of the US dollar following the Federal Reserve’s recent monetary policy announcement. At the time of writing, AUD/USD is trading near 0.6582, close to its lowest level in nearly two weeks. This represents a sharp reversal from the pair’s midweek high—the strongest since October 2024—achieved shortly after the Federal Reserve’s decision on Wednesday. The US central bank delivered a widely anticipated 25 basis point cut to the federal funds rate, lowering it to a 4.00%-4.25% range. However, the market’s initial optimism was dampened by Federal Reserve Chair Jerome Powell’s press conference, which conveyed a more hawkish tone than expected. Powell’s comments suggested caution regarding further rate cuts, prompting a rebound in both the US dollar and Treasury yields. This reversal has undermined risk-sensitive currencies such as the Australian dollar. Adding to the AUD’s downward pressure were disappointing domestic labor market figures released on Thursday, which revealed underlying economic weaknesses. The Australian Bureau of Statistics reported that employment declined by 5,400 jobs in August, a significant shortfall compared to market expectations of a 22,000-job increase. Notably, full-time employment contracted sharply by 40,900 positions, while part-time employment saw a modest gain of 35,500 jobs. The participation rate edged down to 66.8% from 67.0%, indicating a slight reduction in labor force engagement, while the unemployment rate remained steady at 4.2%. These labor market data, coupled with the more hawkish stance from the Fed, have cast a shadow over the Australian dollar’s near-term outlook. Investors remain cautious amid concerns that slower domestic job growth could dampen economic momentum and complicate the Reserve Bank of Australia’s (RBA) policy path. Looking ahead, market participants will closely monitor upcoming Australian economic indicators and RBA communications for further clues on the currency’s direction.