US non-farm payrolls fell by 23,000 versus expectations for an 80,000 rise, while the BLS revised May down by 66,000 (from 129,000) and June by 37,000 (from 57,000), leaving combined May–June revisions 103,000 lower. The three-month rolling average dropped to 20,000 against an estimated breakeven pace of around 50,000. The unemployment rate eased to 4.1% from 4.2%, but the labour force shrank by 264,000, net employment fell by 87,000 and participation slipped to 61.4%, its lowest since early 2021. Wage growth softened to 3.2% y/y from 3.5% and to 0.1% m/m from 0.3%. OIS pricing shifted, with year-end Fed rate expectations moving from 22 bps of tightening to 17 bps, and September pricing from about 7 bps to 5 bps; US Treasury yields bull-steepened and the USD weakened, including against JPY and CAD.
Attention turns to the RBA decision at 4:30 am GMT tomorrow, with consensus for a second straight hold at a 4.35% cash rate after 75 bps of increases this year. Since June, headline CPI eased to 3.8% y/y from 4.0%, while trimmed-mean inflation rose to 3.6% from 3.5% but came in below the 3.7% median estimate; it remains above the RBA’s 2–3% target band and its May year-end forecasts. Australia’s unemployment has moved into a 4.1–4.5% range over the past two-plus years, with June at 4.4%, while June employment rose by just under 80,000 after about 44,000 in May. Markets also await US July CPI on Wednesday, plus UK June GDP and US July PPI on Thursday; RBA guidance via the SoMP will be watched against May projections for a 4.7% cash rate by year-end and trimmed-mean forecasts of 3.8% for June and 3.5% by year-end.
Implications For Currency And Bond Markets
We should prepare for a period of heightened volatility in the currency and bond markets following the surprisingly weak US employment data. With headline payrolls falling by 23,000 against an expected 80,000 gain, the Federal Reserve is facing clear signs of economic cooling that could halt further rate hikes. This shifts our immediate focus to short-dollar strategies, particularly using derivative instruments to capture downward momentum in USD/JPY and USD/CAD.
Recent historical data supports this cautious approach, as similar US labor market slowdowns have historically triggered aggressive repricing of interest rate expectations. For instance, when US non-farm payrolls missed expectations significantly in past cycles, short-term treasury yields plummeted as traders rushed to price in rate cuts rather than hikes. We expect a similar bull-steepening of the yield curve in the coming weeks, making long positions in interest rate futures highly attractive.
Strategic Response To RBA And Market Guidance
Simultaneously, we must turn our attention to the Reserve Bank of Australia’s policy decision and its Statement on Monetary Policy. If the RBA revises its inflation and cash rate forecasts downward, we should position for a weakening Australian Dollar by buying AUD put options. Conversely, if the RBA maintains its hawkish rhetoric due to sticky underlying inflation, we see a strong opportunity to go long on AUD/USD, targeting a breakout above recent resistance levels.
