• AUD/USD gains ground as US election results trigger a broad-based decline in the US Dollar.
  • US economic data points to continued resilience, supporting expectations of further Fed tightening.
  • Money markets see little chance of another RBA hike in December following Tuesday's monetary policy decision.

AUD/USD edges higher on Wednesday as the US midterm election outcome weighs on the US Dollar (USD), helping the Australian Dollar (AUD) recover from the two-week lows reached following the Reserve Bank of Australia’s (RBA) dovish interest rate hike on Tuesday. At the time of writing, the pair trades around 0.7008, up 0.63% on the day, after touching an intraday low of 0.6954.

Democrats secured majorities in both chambers of Congress, setting up a divided government in Washington and raising political and fiscal uncertainty. The US Dollar Index (DXY), which measures the currency against six major peers, trades near 101.50, down around 0.35% on the day. It earlier fell to 101.21, its lowest level since September 30, before recovering some ground following US economic releases.

The ADP report showed that private employers added 86K jobs in October, exceeding forecasts of 69K. September’s increase was revised down to 86K from 90K. Separately, the ISM Services Purchasing Managers' Index (PMI) slipped to 54.5 from 54.9, slightly below the expected 54.8 but still pointing to expansion.

The data gives the Federal Reserve (Fed) room to continue its fight against inflation, as elevated energy costs linked to the Middle East conflict risk keeping price growth above its 2% target for longer. Markets price in an 82% probability of a December rate increase, according to the CME FedWatch Tool.

Traders now await Thursday’s US Initial Jobless Claims and Friday’s Nonfarm Payrolls (NFP) report to assess whether labour market conditions support another Fed hike.

RBA hike tempered by softer guidance as markets price out further tightening

Analysts at Commerzbank note that the Reserve Bank of Australia (RBA) has raised its cash rate by 25bp to 4.85%, but “struck a less hawkish tone on further tightening.” They highlight that the decision was not unanimous, with “the vote…6-3” as three members preferred to keep rates on hold “amid concerns over rising unemployment and housing weakness.”

Commerzbank adds that market pricing now reflects limited appetite for additional tightening, pointing out that “the OIS market is pricing in just 10% chance of another 25bp hike in December and just 8bp by February 2027.” Moreover, they note that “they are pricing in a rate cut of 9bp by September 2027,” underscoring that “the market is not expecting any more rate hikes by RBA.”

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.