AUD/USD drops to near 0.6800 as US Dollar extends recovery, US Jobless Claims ease

• AUD/USD has slipped sharply to near 0.6800 as the USD Index has extended its recovery.
• US weekly jobless claims for the very first time surprisingly dropped to 228K from the prior release of 237K.
• Australia’s tight labor market conditions would force the RBA to resume its policy-tightening spell from August.

The AUD/USD pair has dropped sharply to near the round-level support of 0.6800 after facing stiff barriers around 0.6850 in the early New York session. The Aussie asset has sensed a sell-off as the US Dollar Index (DXY) has extended its recovery. The USD Index has recaptured the previous day’s high around 100.50 as the United States weekly Jobless Claims for the week ending July 16 have surprisingly declined.

US Department of Labor has reported that last week individuals who applied for jobless claims for the very first time surprisingly dropped to 228K from the prior release of 237K while investors were anticipating a jump to 242K. This indicates that labor market conditions are still tight and might keep inflationary pressures elevated.

S&P500 is expected to open on a bearish note following negative cues from overnight futures. Investors should brace a stock-specific action as the US corporate has started posting quarterly results. Considering the strength in the US Dollar’s rally, more upside in the USD Index seems favored. Also, the 10-year US Treasury yields have jumped to near 3.82%.

Meanwhile, the Australian Dollar could rebound sooner as Australia’s employment conditions remained resilient in June. Australian Bureau of Statistics reported that the labor market was added with fresh 32.6K payrolls, higher than the estimates of 15K but remained lower than the former release of 76.5K. The Unemployment Rate remained unchanged at 3.5% while investors were anticipating an increase to 3.6%.

Tight labor market conditions would force the Reserve Bank of Australia (RBA) to resume its policy-tightening spell from August. RBA Governor Philip Lowe kept interest rates unchanged in July at 4.10%. An upbeat labor market could propel inflationary pressures as labor shortage would be offset by higher employment bills.