The Australian Dollar is maintaining modest gains against the US Dollar despite losing most of its earlier post-NFP rise. The US Nonfarm Payrolls report revealed 73,000 jobs were added in July, falling short of the expected 110,000, influencing expectations of a Reserve Bank of Australia (RBA) rate cut on August 12.
The AUD/USD traded around 0.6446, up 0.30% on the day, but seeing its largest weekly decline since March. The US Dollar Index (DXY) retreated from a two-month high to 99.13, amidst rising prospects of a September Federal Reserve rate cut prompted by weaker US labour market data.
July NFP Report And Its Impact
The July NFP report showed substantial downward revisions, with May and June payrolls cut by 258,000 jobs, while the unemployment rate edged to 4.2% as expected. Wage growth remained steady, and the market now sees an 82% chance of a rate cut by the Federal Reserve in September.
Australia’s Q2 Producer Price Index (PPI) increased 3.4% annually and 0.7% quarterly, signalling easing cost pressures. The second-quarter Consumer Price Index (CPI) indicated slowing inflation, aligning with the RBA’s inflation target, reinforcing the likelihood of a rate cut in their upcoming meeting on August 12.
Based on the data from this past Friday, August 1st, we see a significant shift in market expectations. The very weak US jobs report, adding only 73,000 jobs in July against expectations of 110,000, has put a Federal Reserve rate cut firmly on the table for September. The massive downward revisions of 258,000 for the prior two months amplify this weak economic picture.
This jump in uncertainty was immediately reflected in the market’s volatility gauges. Looking at the numbers, the CBOE’s VIX index, a key measure of expected market turbulence, jumped 15% following Friday’s NFP report. This signals that traders are preparing for much larger price swings in the coming weeks.
RBA Meeting And Commodity Prices
Here in Australia, the Reserve Bank of Australia (RBA) is facing its own pressures ahead of its August 12 meeting. The slowing inflation we saw in the second quarter data gives the RBA a clear justification to cut rates. This view is reinforced by Australia’s latest retail sales figures, released just this week, which showed a surprise contraction of 0.3% for July.
Adding to the pressure on the Australian dollar, we’ve also seen iron ore prices dip below $100 per tonne, a level last seen in early 2025, reflecting concerns over Chinese industrial demand. For us, this combination of weak domestic data and falling commodity prices makes an RBA rate cut next week highly probable. This creates a compelling case for Aussie dollar weakness.
For derivative traders, this setup suggests positioning for increased price action. With both the Fed and the RBA poised to cut rates, implied volatility on AUD/USD options is likely to rise heading into the RBA meeting and the Fed’s September decision. We should consider strategies that benefit from this expected rise in volatility, rather than just betting on a single direction.
The AUD/USD pair is now caught between two dovish central banks, which could cap its overall direction. While the pair bounced to 0.6446 on the US dollar’s weakness, the prospect of an imminent RBA rate cut will likely limit any further significant gains. We are now watching to see which central bank appears more aggressive in its easing cycle.
