The Australian dollar retreated through trade on Thursday, coming off highs at 0.7164 to sink back below 0.71 as investors adjusted positions, ameliorating their reactions to the Fed’s latest policy announcement. The AUD found renewed upside support through the domestic session after a surprise decline in the unemployment rate, the first print below 5% in nearly 8 years. However, a decline in the pace of employment growth and reduction in the participation rate somewhat tempered AUD upside moving through the afternoon.
Labour market performance remains a key marker governing AUD direction through the 2nd quarter as the monetary policy implications of a softening could be significant. GDP data released earlier this month showed the economy had slowed significantly, entering a per capita recession for the first time since 2006, highlighting a gap between RBA optimism and market indicators. Should labour market performance begin to turn and the RBA will be forced to respond, and the likelihood of a rate cut in July or August increases.
We expect the AUD to maintain recent ranges through Friday, trading between 0.7050 and 0.7150.