AUD/USD choppy but ultimately higher in upper 0.7100s as dollar slides post-mixed jobs report

AUD/USD was choppy on the final day of the first week of 2022, dipping as low as the 0.7130s in pre-US open European trade before eventually rebounding 50 pips in wake of a mixed US jobs report to the 0.7180s. The rally has stalled in this area given the presence of the 21-day moving average at 0.7190 and the Monday/Tuesday lows at 0.7185. On the day, that means AUD/USD is on course to gain around 0.3%, a fairly uninspired performance when compared to the gains some of its G10 peers are enjoying versus the US dollar in wake of the jobs data. And on the week, AUD/USD is still set to close about 1.2% lower.

FX strategists were perplexed at the dollar reaction to the latest jobs report. Yes, the headline monthly gain in non-farm payrolls came in at 199K, well below median forecasts for 400K. But that won’t matter too much to the Fed has acknowledged that the main problem holding the US labour market back from further job gains is a lack of labour supply, not demand. Meanwhile, the unemployment rate dropped under 4.0% and a measure of underemployment also fell substantially and back very close to pre-pandemic levels. Wage growth was also strong. Thus, the data endorses the Fed stance laid out in the minutes this week that the labour market is very “tight” and is either very close to or already at “short-term” full-employment.

The jobs report thus meets the criteria that, so long as labour market progression remains reasonable, rate hikes will soon be warranted. In other words, the central banks tightening plans for 2022, as laid out at the December meeting and in its minutes, remain very much intact. This helped boost long-term US bond yields, with the 10-year yield hitting its highest since January 2020 at just under 1.80%. Typically, surging US yields would be dollar positive. Perhaps the dollar bulls will regain control next week, a week which sees the release of the December US Consumer Price Inflation report on Wednesday, Producer Price Inflation on Thursday and December Retail Sales on Friday. Fed Chair Jerome Powell will also testify on Monday. That’s plenty of catalysts for dollar bulls to latch onto.