AUD/USD rises to near 0.6480 as accelerating Fed dovish bets weigh on US Dollar

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The AUD/USD pair moves higher to near 0.6480 during the European trading session on Monday.

AUD/USD gains to near 0.6480 as rising Fed dovish bets have pushed the US Dollar on the back foot.
The US NFP report for July has shown signs of weak labor demand.
Investors await the US Services PMI data for July.

The AUD/USD pair moves higher to near 0.6480 during the European trading session on Monday. The Aussie pair gains as demand for risk-perceived assets has increased, following an increase in market expectations that the Federal Reserve (Fed) could resume its monetary expansion cycle in the September meeting.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates in the September meeting has increased to 80.8% from 41.2% seen on Thursday, a day before the release of the Nonfarm Payrolls (NFP) data for July.

Traders raised Fed dovish bets significantly as the US NFP report signaled a slowdown in the labor demand. The report showed an addition of 73K fresh workers, sharply lower than estimates of 110K. Also, employment figures for June were revised significantly lower to 14K from 147K. The Unemployment Rate rose to 4.2%, as expected, from the prior release of 4.1%.

Accelerating Fed dovish bets have weighed heavily on the US Dollar. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 98.90. However, the Index fell over 1.4% in a single trading day on Friday from its here-month high of 100.25.

Meanwhile, investors await the US revised S&P Global and ISM Services PMI data for July, which is scheduled to be released on Tuesday.

In Australia, markets are closed on account of a Bank Holiday.

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.