The Australian Dollar is holding small gains against the US Dollar, even after sliding from its earlier rise following the Nonfarm Payroll (NFP) report. The report showed that only 73,000 jobs were added in July, below the expected 110,000, which has raised talk of a possible rate cut by the Reserve Bank of Australia (RBA) on August 12. Currently, the AUD/USD trades around 0.6446, up 0.30% for the day, but it has faced its largest weekly drop since March. The US Dollar Index (DXY) has fallen from a two-month high to 99.13, as the weak US labor market data increases expectations of a Federal Reserve rate cut in September.

Impact of the July NFP Report

The July NFP report showed significant downward revisions, with 258,000 jobs cut from May and June payrolls. The unemployment rate did rise to 4.2% as expected, while wage growth remained stable. Now, the market anticipates an 82% chance of a Federal Reserve rate cut in September. In Australia, the Q2 Producer Price Index (PPI) rose 3.4% year-over-year and 0.7% quarter-over-quarter, indicating easing cost pressures. The second-quarter Consumer Price Index (CPI) showed slowing inflation, aligning with the RBA’s inflation target and supporting the likelihood of a rate cut in their upcoming meeting on August 12. Recent data from August 1st shows a significant change in market expectations. The weak US jobs report, with just 73,000 jobs added in July compared to 110,000 expected, puts a Federal Reserve rate cut firmly on the table for September. The large downward revision of 258,000 jobs for the past two months emphasizes the weak economic situation. This uncertainty led to increased volatility in the market. The CBOE’s VIX index, a key measure of expected market turbulence, jumped 15% after the NFP report, indicating that traders are preparing for larger price swings in the coming weeks.

RBA Meeting and Commodity Prices

In Australia, the Reserve Bank of Australia (RBA) faces its own challenges ahead of the August 12 meeting. Slowing inflation from the second quarter data gives the RBA a strong reason to cut rates. This is further supported by the latest retail sales figures, which revealed an unexpected contraction of 0.3% in July. Additionally, iron ore prices have fallen below $100 per tonne, a level not seen since early 2025, raising concerns about Chinese industrial demand. Together, these weak domestic data and falling commodity prices suggest a likely RBA rate cut next week, creating a strong case for a weaker Australian dollar. For derivative traders, this situation suggests preparing for increased price movement. With both the Federal Reserve and RBA poised to cut rates, implied volatility on AUD/USD options is likely to rise leading up to the RBA meeting and the Fed’s decision in September. Traders should consider strategies that benefit from this expected increase in volatility rather than just betting on one direction. The AUD/USD pair is currently influenced by two dovish central banks, which could limit its overall movement. Although the pair rose to 0.6446 due to US dollar weakness, the potential for an RBA rate cut may restrict any significant gains. We are now closely watching which central bank will act more aggressively in its easing measures. Create your live VT Markets account and start trading now.

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