Aussie Dollar Extends Losses Despite Strong Jobs Rebound

Key Moments

Australian Dollar Under Pressure Around 0.6900

AUD/USD remains on the back foot for an eighth consecutive session, hovering near 0.6900 during Thursday’s Asian trading. The Australian Dollar (AUD) continues to trade lower even after the release of domestic labor market figures, which pointed to an improving employment backdrop.

Labor Market Data Signals Recovery

Fresh data from the Australian Bureau of Statistics (ABS) indicates that Australia’s labor market showed solid signs of recovery in May. The Unemployment Rate edged down to 4.4% from April’s 4.5%, exactly in line with market forecasts.

The headline Employment Change delivered a strong upside surprise. The economy added 40.3K jobs, comfortably beating the consensus estimate of a 25K increase and reversing the 40.7K jobs lost in the previous month.

Job Gains Led by Part-Time Positions

Beneath the headline numbers, the Participation Rate remained unchanged at 66.7%, indicating a stable share of the working-age population engaged in the labor market.

The composition of employment growth was skewed toward part-time roles. Part-Time Employment increased by 35.2K positions, fully offsetting the 19K decline reported in April. Full-Time Employment also improved, though at a slower pace, rising by 5.2K after a prior fall of 21.7K.

Stronger U.S. Dollar Weighs on AUD

The softness in AUD/USD persists as the U.S. Dollar (USD) remains underpinned by expectations that the Federal Reserve could proceed with interest rate hikes later this year. Market participants are positioning for tighter U.S. monetary policy after Federal Reserve Chairman Kevin Warsh emphasized a strong commitment to bringing inflation under control, while stating that the broader economy is on solid ground.

This perceived hawkish tilt is reflected in the CME FedWatch tool, which shows that traders are discounting an 83.1% probability of rate hikes by the end of December. The resulting support for the USD is limiting any positive impact on the Australian Dollar from the stronger domestic employment figures.

Focus Turns to U.S. PCE Inflation Data

Attention now shifts to the upcoming release of U.S. Personal Consumption Expenditures (PCE) inflation data due later in the day. Market expectations point to headline PCE inflation rising to 4.1% year-on-year in May from 3.8% in April, while core PCE is projected to tick up to 3.4% year-on-year.

The PCE results could influence the interest rate outlook and, in turn, the trajectory of the U.S. Dollar and AUD/USD in the near term.

Indicator Snapshot: Employment Change s.a.

The Employment Change released by the Australian Bureau of Statistics measures the monthly variation in the number of employed people in Australia, adjusted for seasonal patterns. A higher Employment Change reading is generally associated with stronger consumer spending, support for economic growth, and is typically considered bullish for the Australian Dollar. Conversely, a lower reading is usually viewed as bearish for the currency.