Australian Dollar resumes advance as US Dollar loses post-NFP momentum

AUD/USD resumes its advance on Friday after a brief bout of weakness following a stronger-than-expected United States (US) employment report. The pair initially fell to 0.7173 before reversing as the US Dollar (USD) struggled to capitalize on the upbeat figures, even as they strengthened expectations of a Federal Reserve (Fed) rate hike at the September 15-16 meeting. At the time of writing, AUD/USD trades around 0.7206, near levels last seen on May 15.

US Nonfarm Payrolls (NFP) increased by 162K in August, well above market expectations for a 56K gain. Julys reading was revised higher to 21K from the previously reported 23K decline, while the Unemployment Rate held steady at 4.1%, as expected. US Bureau of Labor Statistics

The US Dollar jumped after the employment report but quickly lost momentum. The US Dollar Index (DXY), which tracks the Greenbacks value against a basket of six major currencies, trades around 99.10 after climbing to 99.36.

According to the CME FedWatch Tool, markets now price in around a 60% chance of an increase, up from 50% before the NFP release.

Uncertainty over the Fed‘s policy path persists, with the outcome of the September meeting likely to hinge on next week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) reports. Recent inflation data points to some moderation, although elevated Oil prices due to the war in the Middle East continue to complicate the inflation outlook.

Cleveland Fed President Beth Hammack said in a LinkedIn post that policy is not restrictive, adding that “inflation is too high — and the longer it stays above our objective, the harder it will be to bring it back down.”

The Australian Dollar remains supported by the RBA‘s hawkish stance, with traders anticipating another rate increase later this month as inflation sits above the central bank’s 2%-3% target band, while resilient second-quarter growth gives policymakers room to tighten further.

Looking ahead, Australia‘s economic calendar is relatively light next week, with September Consumer Inflation Expectations the only major domestic release. Chinese inflation and trade data will also draw attention given Australia’s close trade ties with China.