AUD/USD inter-market: Risks further downside on Aus jobs

The bears are back in control on Wednesday, having brought an end to a five-day recovery-rally seen in the AUD/USD pair from four-month troughs of 0.7331.

The rebound in the spot was mainly driven by broad based US dollar weakness, in the wake of fading June Fed rate hike expectations amid a patch of softer US economic releases. Moreover, risk-on rally in the US equities combined with a solid rebound staged by oil prices also aided the AUD/USD  pullback. However, the recovery lost pace and the major returned to the red zone today, despite ongoing USD softness across the board, as cautious RBA minutes and falling iron-ore and copper prices weigh negatively on the AUD. Analysts at ING noted: “Two factors continue to concern the RBA - most notably, the housing market, which seems to have responded only marginally to tighter mortgage lending conditions imposed by the Australian Regulator APRA, and the labour market, which exhibited continued slack.”

Meanwhile, the spot price for iron ore has declined from US$80/t at the end of March to around US$60/t so far this month, adding to renewed downside in the resource-linked Aussie.

Also persisting risk-off trades, fuelled by rising political uncertainty in the US, after the NY Times reported that the US President Donald Trump asked then-FBI Director James Comey in February to drop the investigation into former national security adviser Michael Flynn. As a result, Chairman of the House Oversight Committee Representative Jason Chaffetz sent a letter to the FBI asking for all memoranda, notes, and recordings relating to communications between Comey and Trump by May 24. 

Markets also remain wary heading into next big risk event for the Aussie, the employment report, due to be reported tomorrow. The recent slack in the labour market may continue, which could further fuel AUD selling going forward.