Australian Dollar declines following weak labor data

The Australian Dollar (AUD) experienced a decline following the release of weak labor market data, as the country's unemployment rate rose to 4.5% in July, surpassing market forecasts of 4.4%. This was made worse by a significant drop in employment change, with 15.8K jobs lost, a sharp decline compared to the 80.2K jobs added in June and well below the expected 15.0K growth.

Experts at Rabobank suggest that market expectations for further tightening from the Reserve Bank of Australia (RBA) are modest, with only 12 basis points of rate hikes anticipated over the next three months. They note that the outlook for the AUD is being challenged by several factors, such as weaker Chinese demand for Australian commodities and a deteriorating domestic economic environment.

However, the AUD/USD pair's downside may be limited by a softer US Dollar (USD), which is facing headwinds from recent economic data and expectations from the Federal Reserve. The Fed's July meeting minutes revealed that officials favored raising interest rates if inflation didn't cool, as the benchmark rate remained steady at 3.5%–3.75%.

Recent monthly data indicates modest price pressures, softening the case for aggressive tightening. The AUD/USD pair currently trades at 0.7110 and is above both the nine-period and 50-day Exponential Moving Averages, indicating a constructive near-term bullish bias. The 14-day Relative Strength Index (RSI) at 63.2 remains in bullish territory, suggesting that upside momentum is still supporting the pair.

The immediate barrier for AUD/USD is the psychological level of 0.7200, with support at the nine-period EMA around 0.7087 and a deeper technical floor at the 50-period EMA near 0.7034.