AUD/USD trades subduedly near 0.6470 ahead of US NFP data

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The AUD/USD pair trades marginally lower to near 0.6470 during the European trading session on Thursday. The Aussie pair is under slight pressure as the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near its over five-month high around 100.30.

AUD/USD ticks lower to near 0.6470 as the US Dollar trades firmly.
Traders trim Fed dovish bets as officials warn of upside inflation risks.
Investors await the US NFP data to get cues about the current status of the labour market.

The US Dollar (USD) demonstrates strength as traders pare bets supporting more interest rate cuts by the Federal Reserve (Fed) this year. According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has diminished to 32.8% from 50.1% seen on Tuesday.

Fed dovish expectations were squeezed following the Federal Open Market Committee (FOMC) minutes of the October monetary policy release on Wednesday. The minutes showed that officials stressed the need to exercise caution over further interest rate cuts after cutting them by 25 bps to 3.75%-4.00%.

“Most participants noted further rate cuts could add to the risk of higher inflation becoming entrenched or could be misinterpreted as a lack of commitment to the 2% inflation objective,” FOMC minutes showed.

Meanwhile, investors await the United States (US) Nonfarm Payrolls (NFP) data for September, which will be published at 13:30 GMT. The official employment data will significantly influence market expectations for the Fed’s monetary policy outlook.

Economists expect US employers to have added 50K fresh workers, higher than 22K in August. The Unemployment Rate is seen unchanged at 4.3%. Average Hourly Earnings, a key measure of wage growth, is expected to have grown steadily by 0.3% and 3.7% on a monthly as well as annual basis.

On the Aussie front, investors await the flash S&P Global Purchasing Managers’ Index (PMI) data for November, which will be released on Friday.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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