AUD/USD drops sharply as US private payrolls data outperform expectations

• AUD/USD has fallen back swiftly to 0.6640 as US payroll additions were doubled in June than expected.
• The US labor market was added with fresh 497K fresh talent, higher than the expectations of 228K and the former release of 278K.
• Volatility in the USD Index is expected to remain elevated ahead of the US ISM Services PMI data.

The AUD/USD pair has retreated swiftly from 0.6688 as the United States Automatic Data Processing (ADP) Employment report has posted sharply higher payroll additions in June than expected. According to the ADP report, the US labor market added fresh 497K fresh talent, higher than the expectations of 228K and the former release of 278K.

Stellar additions of fresh Employment indicate that the US labor market conditions are upbeat and sufficient to propel inflationary pressures. On Wednesday, released Federal Open Market Committee (FOMC) minutes showed that all policymakers are favoring more interest rate hikes, and now upbeat Employment data have strengthened the need for extremely restrictive monetary policy.

Meanwhile, S&P500 futures have extended losses dramatically as fears of more interest rates from the Fed have propelled. The overall market mood has turned quite negative and has improved the appeal of the US Dollar Index (DXY).

The USD Index has rebounded strongly after vertically correcting to near 102.92. Also, the 10-year US Treasury yields have jumped swiftly to near 4.03%.

Volatility in the USD Index is expected to remain elevated as investors are now shifting their focus toward the release of the US ISM Services PMI data. The economic data is seen higher at 51.0 vs. the former release of 50.3. While New Orders Index is seen declining to 53.3 against the prior release of 56.2.

On the Australian Dollar front, the Reserve Bank of Australia (RBA) kept the interest rate decision unchanged at 4.10%. RBA Governor Philip Lowe kept monetary policy steady but kept doors open for further interest rate hikes. Investors should note that Australia’s monthly Consumer Price Index (CPI) softened sharply to 5.6% vs. the prior release of 6.8%.