The Australian dollar is slightly lower on Monday, after sliding 0.90% on Friday. In the European session, AUD/USD is trading at 0.6499, down 0.21%. Earlier, AUD/USD traded as low as 0.6486, its lowest level since mid-November.

RBA set to hold rates

The Reserve Bank of Australia is expected to maintain the benchmark rate at 4.35% at Tuesday’s meeting, the first of 2024. The RBA raised rates in November but has been reluctant to start trimming rates, even though inflation has been falling and retail sales fell sharply in December. There is still some distance to go in the inflation battle, with inflation running at 3.4% y/y. This is close to the upper band of the RBA’s target range of 1-3%, but as the Fed has experienced in its battle to tame inflation, the last mile of the race has proven to be the toughest.

What can we expect from the RBA on Tuesday? With inflation still elevated and sticky, we could see the central bank remain cautious and push back against rate cut expectations. Last week’s inflation and retail sales reports were weaker than expected, prompting traders to bring forward bets on rate cuts. The markets have priced in a rate cut in May at 50-50 and an 80% probability in June. If Governor Bullock maintains its hawkish stance, the struggling Australian dollar could get a boost.

US nonfarm payrolls soars

The US nonfarm payroll report sizzled in January with a gain of 353,000, crushing the market estimate of 180,000. The December release was revised upwards to 333,000, up from 216,000. As well, wage growth rose 0.6% m/m, up from 0.4% in December and double the market estimate of 0.3%. This points to a robust labor market.

The markets lowered expectations of a March rate cut to 20% after the employment release and that has fallen to 15% on Monday, according to the CME FedWatch tool. The 10-year US Treasury yield climbed above 4% after the employment report.

AUD/USD Technical

  • 0.6473 and 0.6433 are providing support
  • There is resistance at 0.6541 and 0.6581



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