Australian Dollar falls to lowest since March as robust NFP reinforces Fed hike bets

• AUD/USD slides to multi-month lows as stronger US Dollar strength and risk aversion weigh on the Aussie.
• US Nonfarm Payrolls exceed forecasts, supporting expectations of further Fed tightening.
• The RBA signals a wait-and-see approach following its fifth interest rate hike this year.

AUD/USD extends losses on Friday, slipping to levels last seen in late March. A firmer US Dollar, weaker risk appetite amid the AI-led stock-market rout and cautious Reserve Bank of Australia (RBA) guidance following this week’s rate hike all contribute to the decline. At the time of writing, AUD/USD trades around 0.6858, heading for a weekly loss of more than 2%.

Upbeat US jobs data released on Friday help the Greenback recover after coming under pressure following the US midterm election results. The US Dollar Index (DXY), which tracks the currency against a basket of six major peers, trades around 102.15 after touching a five-week low near 101.24 earlier this week.

US Nonfarm Payrolls (NFP) rose by 165K in October, comfortably beating the 65K forecast. September’s increase was also revised higher to 60K from 29K, while the Unemployment Rate unexpectedly fell to 4.1% from 4.2%.

With inflation running above the Federal Reserve’s (Fed) 2% target and energy costs posing further upside risks, a steady labour market gives Fed hawks little reason to back away from further tightening. Traders price in an 80% chance of a December rate hike, according to the CME FedWatch tool.

On the Australian side, the RBA raised its cash rate by 25 basis points (bps) to 4.85% on Tuesday, as expected, taking borrowing costs to their highest level since 2008. The move marks its fifth hike this year as policymakers tackle inflation fuelled by higher Oil prices.

The central bank dropped its explicit reference to further hikes if needed. Governor Michele Bullock said it was “probably best to pause and assess incoming data.”

RBA hike seen as dovish as OCBC flags next move likely a cut

Analysts at OCBC Group Research acknowledge that the RBA justified its latest move by noting that “inflation remains elevated and recent data indicate that it is broadly based.” However, they also highlight the Bank’s recognition that “the increases in the cash rate target since the beginning of the year have tightened financial conditions,” with the impact already visible as “the economy is slowing, housing prices have fallen significantly and the unemployment rate has risen.” Against this backdrop, OCBC concludes that “we expect no more hike in this cycle, and the next policy move is likely to be a cut.”