The Australian dollar is trading around $0.7000, close to a seven-week low, as markets reassess the Reserve Bank of Australia’s monetary-policy outlook following a mixed labour-market report.

Australia’s economy added 39,500 jobs, almost twice the expected increase of 20,000, but the unemployment rate rose to 4.6%, above expectations for 4.5% and reaching its highest level since late 2021.

The contrasting signals are complicating the outlook for the RBA. Employment growth remains positive, but the increase in unemployment suggests that labour-market conditions are beginning to loosen. That could reduce domestic inflation pressure and give policymakers more flexibility around the timing and pace of future rate increases.

Markets continue to assign an 86% probability of a 25-basis-point RBA rate increase to 4.60% in September, although that has fallen from 95% before the employment report. Expectations for another move in November have also weakened, with the probability now around 44%.

At the same time, the Australian dollar is facing an additional external headwind from a stronger US dollar, while higher oil prices are weighing on global risk appetite amid uncertainty surrounding Middle East peace negotiations.

Market Snapshot

Current AUD/USD Price Action

AUD/USD is holding around the $0.7000 area after falling to a seven-week low.

The pair is being pressured by two competing developments. Domestically, Australia’s labour market is beginning to show signs of moderation, while externally the US dollar is strengthening as stronger US economic data reinforces expectations for a more restrictive Federal Reserve policy outlook.

The $0.7000 level is therefore becoming an important psychological reference point for traders.

A sustained break below this area would place greater emphasis on the weakening Australian labour-market signals and the broader US dollar trend. Conversely, a recovery above $0.7000 could indicate that markets are beginning to absorb the softer labour data without completely abandoning expectations for RBA tightening.

Australian Labour Market Sends Mixed Signals

The employment report presents a complicated picture for the RBA.

Australia added 39,500 jobs, significantly above the expected 20,000 increase. On the surface, that points to continued resilience in employment.

However, the unemployment rate increased to 4.6%, exceeding the 4.5% forecast and reaching its highest level since late 2021.

The combination suggests that the labour market is not weakening uniformly. Employment growth remains positive, but the rise in unemployment indicates that labour-market slack may be increasing.

For the RBA, that distinction matters because a gradually loosening labour market could reduce wage and inflation pressures over time.

RBA Rate-Hike Expectations Remain Elevated

Despite the increase in unemployment, markets continue to price a high probability of another RBA rate increase.

The probability of a 25-basis-point move to 4.60% in September is around 86%, down from 95% before the employment data.

The shift indicates that traders have not abandoned the possibility of further tightening, but confidence in the timing has weakened.

The November outlook is even less certain, with the probability of another rate increase currently around 44%.

The RBA’s September 28–29 meeting therefore becomes particularly important because policymakers will have to weigh continued employment growth against a clear increase in unemployment.

US Dollar Strength Creates an Additional Headwind

The Australian dollar is also being pressured by developments outside Australia.

Stronger-than-expected US economic data has reinforced expectations that the Federal Reserve may need to maintain restrictive monetary policy for longer. Rising US yields can increase demand for the dollar and reduce the relative attractiveness of higher-beta currencies such as the Australian dollar.

This means the AUD could remain under pressure even if Australian domestic data remains reasonably resilient.

The relative policy outlook between the RBA and Federal Reserve will therefore remain one of the most important drivers of AUD/USD.

Oil Prices and Risk Appetite

Higher oil prices are adding another layer of pressure to the Australian dollar.

Rising energy prices can increase global inflation expectations and contribute to tighter monetary-policy expectations. At the same time, higher energy costs can reduce consumer purchasing power and weigh on global economic sentiment.

Uncertainty surrounding progress in Middle East peace negotiations is adding to the market’s risk sensitivity.

The Australian dollar traditionally responds strongly to shifts in global risk appetite, meaning an extended period of uncertainty could limit attempts by the currency to recover.

Bullish Sentiment

1. Employment Growth Remains Strong

Australia added 39,500 jobs, substantially above the 20,000 expected increase. Continued employment growth provides evidence that the economy retains underlying resilience.

2. RBA Rate-Hike Expectations Remain High

An 86% market-implied probability of a September hike means monetary tightening remains firmly in the near-term outlook.

3. Higher Australian Rates Can Support the AUD

A move to 4.60% would maintain relatively restrictive domestic monetary conditions and could provide support for the Australian dollar if US rate expectations begin to moderate.

4. Commodity Exposure Can Support the Australian Economy

Australia’s role as a major commodity exporter can provide underlying support when global demand for raw materials remains firm.

5. A Weaker US Dollar Could Trigger AUD Recovery

Any moderation in US economic data or Federal Reserve expectations could reduce the dollar’s current advantage and allow AUD/USD to recover from its seven-week low.

Bearish Sentiment

1. Unemployment Has Increased to 4.6%

The rise to the highest level since late 2021 indicates that labour-market conditions are becoming less tight.

2. September RBA Expectations Have Weakened

The probability of a September rate increase has fallen from 95% to 86%, showing that the employment data has already changed market expectations.

3. November Tightening Is Becoming Less Certain

With the probability of another November increase around 44%, the forward rate outlook is less supportive of the AUD than it was previously.

4. US Dollar Strength Remains a Major Headwind

A stronger dollar and elevated US yields can continue to pressure AUD/USD regardless of Australian domestic conditions.

5. Higher Oil Prices Could Weigh on Risk Appetite

Continued energy-price increases and geopolitical uncertainty could reduce demand for risk-sensitive currencies such as the Australian dollar.

Price Forecast: What Traders Are Watching

The $0.7000 level is the immediate psychological area to monitor.

A sustained move below $0.7000 would keep the bearish structure intact and could increase attention on lower technical levels as traders reassess the RBA’s tightening trajectory.

A recovery above $0.7000 would indicate that the market is beginning to stabilise, particularly if Australian rate expectations remain elevated and US dollar momentum starts to moderate.

The main scenarios are:

Bearish scenario: US economic resilience continues to support the dollar, Australian labour-market conditions weaken further and expectations for additional RBA tightening decline.

Stabilisation scenario: Employment remains resilient enough to preserve the September RBA hike outlook while the rise in unemployment prevents expectations for aggressive further tightening.

Recovery scenario: The RBA delivers the expected increase, Australian economic data remains firm and US dollar momentum weakens, allowing AUD/USD to regain ground above $0.7000.

Supply Outlook

For the Australian dollar, currency supply is closely linked to capital flows, interest-rate expectations and demand for Australian assets.

If markets continue reducing expectations for future RBA tightening, the yield advantage supporting the AUD could gradually diminish.

However, a restrictive RBA policy stance and continued demand for Australian commodities could provide an offset, particularly if global economic conditions remain supportive.

Demand Outlook

AUD demand is currently being influenced by three major forces: Australian interest rates, US dollar strength and global risk appetite.

The domestic rate outlook remains supportive in the near term, but the increase in unemployment is beginning to challenge expectations for a prolonged tightening cycle.

Meanwhile, stronger US yields and elevated geopolitical risk can encourage investors to favour the US dollar over the Australian dollar.

A sustained recovery in AUD demand would therefore likely require some combination of resilient Australian data, continued RBA tightening expectations and a moderation in US dollar strength.

Market Outlook for the Coming Sessions

The Australian dollar enters the coming sessions with markets closely focused on the September 28–29 RBA meeting.

The labour-market report has not eliminated expectations for a rate increase, but it has reduced confidence in the strength and duration of the tightening cycle.

The next major question is whether the RBA views the rise in unemployment as evidence that labour-market conditions are cooling sufficiently to reduce future inflation pressure.

At the same time, traders will continue watching US economic data, Treasury yields, Federal Reserve communication, oil prices and developments affecting global risk appetite.

The $0.7000 area is likely to remain a key technical and psychological reference as markets balance Australia’s still-positive employment growth against increasing evidence of labour-market softening.

Currency Hedger View

The Australian dollar is particularly important for businesses exposed to international commodity trade, Australian suppliers, imports, exports and cross-border payments.

The current environment highlights how quickly FX conditions can change when domestic interest-rate expectations, US monetary policy, commodity prices and geopolitical risk move simultaneously.

Currency Hedger monitors central-bank policy, commodity markets, global FX flows and geopolitical developments to help businesses assess currency exposure and manage international payment requirements.

For more information on managing international currency requirements, visit Currency Hedger.

Analysis Louis Roche – Today Markets

The Australian dollar remains under pressure around $0.7000 as a mixed labour-market report challenges expectations for an extended RBA tightening cycle.

The economy is still creating jobs at a solid pace, but the rise in unemployment to 4.6% provides evidence that labour-market conditions are beginning to loosen. That has already reduced the market-implied probability of a September rate increase from 95% to 86% and pushed November hike expectations below 50%.

The RBA therefore faces a delicate policy balance: inflation risks remain relevant, but a cooling labour market could reduce the need for increasingly restrictive policy.

Externally, the stronger US dollar remains a significant obstacle for AUD/USD. Higher US yields, stronger US economic data and elevated oil prices are combining to keep global risk appetite under pressure.

For the coming sessions, the key drivers will be RBA expectations, Australian labour-market data, US yields, Federal Reserve policy and global risk sentiment, with $0.7000 remaining an important level for the Australian dollar.

Louis Roche – Today Markets

Register a Revolut Business Account