The Australian dollar has fallen below US$0.70 as weaker-than-expected employment data prompts markets to reassess the Reserve Bank of Australia’s (RBA) interest-rate outlook. September employment fell sharply, while unemployment rose above expectations, suggesting the labour market may be losing momentum. Attention now turns to quarterly inflation data, which could determine whether further monetary tightening remains likely.

Market Snapshot

• AUD/USD: Falls below US$0.70
• Unemployment rate: 4.7%, above the 4.6% forecast
• Employment change: -39,300 jobs, against expectations for a 20,000 increase
• RBA cash rate: 4.60%
• November rate-hike probability: Below 20%, down from 35%
• December rate-hike probability: 40%, down from 60%

Australian Dollar Price Action and Fundamental Outlook

The Australian dollar is under pressure as the employment figures challenge expectations for further RBA tightening. September’s loss of 39,300 jobs represents a significant deterioration compared with forecasts for employment growth, while the increase in unemployment to 4.7% reinforces concerns that labour-market conditions are easing.

The RBA has raised its cash rate by one percentage point this year to contain inflation. However, weaker employment conditions could make policymakers more cautious about additional increases. Markets have consequently reduced the implied probability of near-term rate hikes, leaving the upcoming third-quarter Consumer Price Index (CPI) report as a critical event for the currency.

Bullish Scenario

The Australian dollar could recover if quarterly inflation remains persistent, prompting markets to restore expectations for further RBA rate increases. Stronger inflation would reinforce the case for maintaining restrictive monetary policy and could provide renewed support for Australian yields and the AUD.

A stabilisation in employment conditions or improved global risk sentiment could also help the currency regain ground above US$0.70.

Bearish Scenario

Further weakness in employment or a softer inflation reading could deepen expectations that the RBA will pause its tightening cycle. If markets continue to reduce rate-hike expectations, the Australian dollar could face additional selling pressure and move towards the July levels referenced in recent market trading.

A stronger US dollar or deterioration in global risk appetite could amplify downside risks, particularly if the interest-rate outlook becomes less supportive of the AUD.

Australian Dollar Forecast

The near-term outlook for AUD/USD remains cautious while the currency trades below US$0.70. The next major directional signal is likely to come from third-quarter inflation data, which will help determine whether the RBA retains a bias towards further tightening or adopts a more measured approach.

A stronger-than-expected CPI reading could trigger a recovery, while softer inflation may reinforce the current bearish momentum. The outlook remains conditional on incoming economic data and broader US dollar movements.

Market Outlook: What to Watch Next

• Q3 Australian CPI: The key test of whether inflation pressures justify further RBA tightening.
• Labour-market data: Additional signs of weakening employment could reduce rate-hike expectations further.
• RBA policy signals: Policymakers’ assessment of inflation and employment will influence interest-rate pricing.
• US dollar performance: Changes in US interest-rate expectations could strengthen or offset AUD movements.
• Global risk sentiment: Shifts in demand for risk-sensitive currencies may add to volatility.

Currency Hedger View

The Australian dollar’s direction will depend increasingly on the balance between inflation risks and signs of a cooling labour market. Businesses with Australian dollar exposure should monitor the upcoming CPI release and changing interest-rate expectations, as either could produce renewed volatility in AUD exchange rates.

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Analysis: Louis Roche, Today Markets

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Foreign exchange and related financial instruments involve significant risk. Forecasts are conditional and may change as new economic data becomes available.