Australian Dollar Struggles, Bonds Trim Gains Ahead of Jobs Report

Australian Dollar Struggles, Bonds Trim Gains Ahead of Jobs Report

The Australian dollar remained under pressure on Wednesday, hovering near a four-month low, while bonds retreated from recent highs. Market focus has shifted to the upcoming employment report following the Reserve Bank of Australia's (RBA) unexpected dovish shift in monetary policy.

Currency Performance

The Australian dollar (AUD) was trading at $0.6375, after plummeting 1% overnight to reach a fresh four-month low of $0.6363. Technical support for the AUD sits precariously at $0.6347, while resistance is seen at 65 cents.

Similarly, the New Zealand dollar (NZD) was stable at $0.5799 after a sharp 1.1% drop overnight to a one-year low of $0.5789. With support close at $0.5771, any breach could see the currency testing levels last observed in November 2022.

RBA’s Dovish Turn

On Tuesday, the RBA opted to keep interest rates steady at 4.35%. However, the central bank softened its hawkish tone by removing language suggesting the need for restrictive policy. This change has shifted market expectations, with swaps pricing in a 63% likelihood of a 25-basis-point rate cut in February and two cuts fully priced in by May 2024.

“For AUD-USD, fundamental headwinds remain clear going into 2025,” noted Lenny Jin, Global FX Strategist at HSBC. “We anticipate any short-term rebounds in the pair to fade in early 2025. While stronger fiscal support from China could help, the structural impact of China on the AUD appears to be waning.”

Employment Data in Focus

With the RBA now closely monitoring data to guide its policy decisions, Thursday’s employment report holds heightened importance. Analysts forecast an increase of 25,000 in October’s job numbers, alongside a slight rise in the unemployment rate from 4.1% to 4.2%.

Australia’s labour market has shown resilience in recent months, with unemployment remaining relatively stable. However, a weaker-than-expected jobs report could strengthen the case for a February rate cut.

Adding to the economic narrative, RBA Deputy Governor Andrew Hauser is scheduled to discuss Australia’s position in the global economy at 6:00 PM local time (0700 GMT) on Wednesday.

Bond Market Moves

Australian government bonds pared gains from Tuesday’s rally. Three-year bond futures fell 3 ticks to 96.258, retreating from a two-month high of 96.30. Similarly, ten-year bond futures dropped 5 ticks to 95.80, off their two-month peak of 95.85.

As the employment data looms, market participants remain watchful for further signs of economic shifts that could influence the RBA’s policy direction.