While strong Australian jobs data has boosted rate-hike pricing, expectations may be running ahead of inflation reality, leaving AUD/USD vulnerable in the near term even as AUD holds up well on the crosses, ING's FX analyst Francesco Pesole notes.

Markets price RBA tightening after employment surprise

"AUD and NZD have been the biggest gainers in G10 since the start of January. Their isolation from rising geopolitical risk and stable fiscal prospects relative to other major economies has raised their attractiveness significantly of late."

"Domestic inputs also helped AUD overnight. Unemployment surprisingly dipped to 4.1% as employment jumped by 65k, heavily driven by full-time hiring. The result has been a 12bp jump in the two-year AUD swap rate – with markets now pricing in 15bp of tightening already in February and 34bp by June."

"This seems premature to us, as 4Q trimmed CPI might actually come in a bit below the RBA projections next week. We are therefore a bit wary of chasing AUD/USD much further just yet – also given our relatively bullish short-term USD view. AUD should keep doing fine in the crosses."