AUD/USD has dropped toward the lower end of the 0.6440-0.6550 range this month. In May, Australia’s labor market showed a decrease, with a loss of 2.5k jobs instead of the expected gain of 21.2k jobs. Full-time jobs increased by 38.7k, but part-time jobs fell by 41.1k. The unemployment rate held steady at 4.1% for the fifth month, which is slightly better than the Reserve Bank of Australia’s (RBA) prediction of 4.2%.

Labor Market Indicators

Leading indicators point to a decline in the labor market. The NAB Employment subindex dropped to 0.4, its lowest since January 2022. Additionally, the Westpac-Melbourne Institute Unemployment Expectations subindex increased by 5% to 127.4, indicating rising unemployment expectations. The RBA may soon have room to cut rates. Futures suggest a 78% chance of a 25 basis point cut to 3.60% in the upcoming meeting on July 8, with predictions of total cuts between 75 and 100 basis points this year. As AUD/USD hovers near 0.6440, reactions in the derivatives market should be sharper this week. The recent employment data from Australia fell short of expectations, showing a loss of 2.5k jobs instead of the anticipated 21.2k gain. This adjustment has influenced market direction. Looking closer, most job losses were part-time roles, which fell by 41.1k. Full-time jobs rose by 38.7k, but this wasn’t enough to counter the overall downturn. Although the unemployment rate remained stable at 4.1% for five months, it’s slightly better than the RBA’s forecast of around 4.2%. Advanced indicators, such as the NAB Employment subindex dropping to 0.4, paint a grim picture. This is its lowest level since early 2022 and reflects a drop in consumer confidence. The Westpac-Melbourne Institute’s unemployment expectations rose by 5%, marking a significant increase. This metric often signals future labor market weaknesses, suggesting households anticipate tougher job conditions.

Monetary Policy Adjustments

Given these trends, the key question isn’t if the central bank can act, but when it will. Money markets have nearly confirmed a 25 basis point cut on July 8, giving it a 78% probability. Further, market predictions suggest up to 100 basis points in cuts by the end of the year. With these developments, there’s clarity on the direction of Australian rates. This will reflect not only through currency trades but also in rate-sensitive products. The ongoing realignment between data implications and futures markets requires careful monitoring. Short-term volatility is likely to become more attractive as we near the July meeting. There may be opportunities for spreads to widen, especially for those with long AUD positions or who expect rates to hold steady. Adding optionality for downside risks—particularly in AUD/USD and AUD/JPY pairs—could be a smart move. Given the labor market softness and futures response, pursuing short gamma strategies could become costly unless well-hedged. Gleaning premiums from those expecting stability worked last month, but sentiments are changing. As traders, we are focusing on signals from local economic weaknesses, not just global dollar flows. Repricing has started, but it hasn’t fully aligned with the likely upcoming policy shift. Traders acting now may find themselves ahead of the risk curve if the rate cuts happen as anticipated. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now