• AUD/USD remains close to recent highs and trades around 0.7140 on Thursday.
• Australian inflation expectations move back above 5%, reinforcing tightening bets.
• Strong US jobs data limits the downside in the US Dollar.

AUD/USD trades around 0.7140 on Thursday at the time of writing, up 0.21% on the day, after briefly reaching a three-year high at 0.7147. The pair is easing slightly from those levels as the US Dollar (USD) regains some traction following solid US labor market data, but it remains firmly supported above the 0.7100 psychological threshold.

The Australian Dollar (AUD) continues to benefit from supportive domestic dynamics. Data released by the Melbourne Institute show that Australian consumer inflation expectations rose to 5% in February from 4.6% in January, reaching their highest level in nearly three years. The rebound fuels speculation that the Reserve Bank of Australia (RBA) may continue tightening monetary policy to contain price pressures.

Last week, the RBA raised its key rate for the first time in more than two years, bringing it to 3.85%, and signaled that further hikes remain possible if inflation proves persistent. Governor Michele Bullock reiterated that the central bank remains data-dependent and does not rule out another increase should inflation expectations stay elevated.

Hawkish remarks from RBA Deputy Governor Andrew Hauser also underpin the Aussie’s strength. However, strategists at OCBC highlight a disconnect between the resilience of the foreign exchange market and the more cautious tone in rates markets, where overnight index swaps price in only limited additional tightening.

On the US side, the Nonfarm Payrolls (NFP) report showed on Wednesday that employment rose by 130K in January, almost double the 70K expected. The Unemployment Rate declined to 4.3% from 4.4%. Although the concentration of job gains in the healthcare sector and downward revisions to prior data temper optimism, the figures ease fears of a sharp slowdown in the labor market.

On Thursday, weekly Initial Jobless Claims fell to 227K, confirming a degree of resilience in employment conditions. In this context, expectations of an imminent rate cut by the Federal Reserve (Fed) are scaled back. Futures markets significantly reduce the chance of easing as soon as March and now favor a potential cut in June.