Australian Dollar sinks as US jobs report brushes away recession fears

• AUD/USD falls following robust US Nonfarm Payrolls data, reducing the likelihood of aggressive Fed rate cuts.
• Fed Chair Powell signals slower pace of easing, with markets now pricing in a 25 bps cut for November.
• Australian data shows mixed results with strong Retail Sales and trade surplus but ongoing manufacturing contraction and slowing business activity.

The Australian Dollar dropped during the North American session after September's jobs report in the United States (US), suggesting that the Federal Reserve (Fed) would not cut rates by 50 basis points (bps) at the November meeting. The AUD/USD trades at 0.6796, down over 0.60%.

The AUD/USD extended its losses following September's monster Nonfarm Payrolls report in the US, which lowered the Unemployment Rate. Average Hourly Earnings were mixed, though overall the data relieved the Fed from lowering rates aggressively.

In September, the Fed cut rates by 50 bps. The swaps markets showed that investors had earlier been  eyeing another one of the same size in the November or December meeting. However, Fed Chair Jerome Powell pushed against this stance on Monday, saying that officials foresaw 50 bps of easing in total at the end of 2024 and that the US central bank is in no rush to cut rates.

According to CME FedWatch Tool data, the markets had priced in a 25 bps cut at the November meeting regarding Fed interest rate probabilities.

Aside from this, Australia's data witnessed a solid Retail Sales report, and the Balance of Trade in August printed a surplus. Although those conditions could prevent the Reserve Bank of Australia (RBA) from cutting rates, business activity in the manufacturing sector, via the Judo Bank Manufacturing PMI, contracted for eight straight months.

On the other hand, the Judo Bank Services PMI slowed sharply, while Building Permits plummeted, hinting at an ongoing economic slowdown.

Next week, Australia's economic docket will feature Business and Consumer Confidence data, RBA speakers, and the RBA's latest meeting minutes. On the US front, the schedule will feature the release of inflation data, jobless claims, and University of Michigan Consumer Sentiment.

Daily digest market movers: Australian Dollar depreciates on US data, geopolitical risks

• The Australian Dollar will likely remain pressured due to several factors. Geopolitical risks, such as over-the-weekend developments in the Middle East, could hurt risk appetite for  the AUD.
• The Aussie's economic docket will feature the NAB Business Confidence and the Westpac Consumer Confidence for September and October, respectively. Following that, traders eye RBA's Hauser, Kent and Hunter speeches.
• US Nonfarm Payrolls increased by 254K in September, significantly surpassing the estimated 140K and the upwardly revised August figure of 159K. The Unemployment Rate fell from 4.2% to 4.1%, lower than expected.
• Average Hourly Earnings in September rose by 0.4% MoM, down from 0.5% in the previous month but exceeding forecasts of 0.3%.
• On a YoY basis, earnings per hour increased by 4% in the 12 months to September, surpassing estimates and improving on August's figures of 3.8% and 3.9%.
• Market participants have ruled out a 50 bps cut from the Fed. The odds of a 25 bps cut stand at 95%, with only a 5% chance of rates being held unchanged, according to the CME FedWatch Tool data.

Technical analysis: Australian Dollar extends its losses below 0.6800

Despite retreacing below the 0.6800 figure, the AUD/USD remains upwardly biased. Momentum is mixed with the Relative Strength Index (RSI) remaining bullish but hinting at dropping into bearish territory.

The AUD/USD could accelerate its losses if it clears the September 6 peak at 0.6767. Once surrendered, the next demand area will be the 50-day Simple Moving Average (SMA) at 0.6712.

On the other hand, if buyers lift the AUD/USD above 0.6800, the first supply zone will be the October 1, 2024 low of 0.6856. A breach of the latter will expose 0.6900 before retesting the year-to-date high of 0.6934.