AUD/USD extends its downside below 0.6700 ahead of US NFP data

• AUD/USD drops sharply below 0.6700 as investors turn cautious ahead of US labor market data.
• An upbeat US NFP report would impact higher prospects for early rate cuts by the Fed.
• The Australian Dollar will dance to the tunes of the monthly Retail Sales data.

The AUD/USD pair has witnessed a steep fall as investors have rushed towards safe-haven assets to safeguard themselves against escalating volatility ahead of the United States Nonfarm Payrolls (NFP) data, which will be published at 13:30 GMT. The Aussie asset has dropped below the crucial support of 0.6700 in the early New York session.

S&P500 futures have generated losses in the European session, portraying a dismal market mood. The US Dollar Index (DXY) has printed a fresh three-week high at 102.70. 10-year US Treasury yields have jumped to near 4.04%.

The release of the US NFP data is expected to trigger sheer volatility in the FX domain. Analysts at TD Securities TD Securities analysts said that they expect a steady 150,000–200,000 growth in payrolls for the third straight month. As per their forecasts the Unemployment Rate will rebound by a tenth after unexpectedly dropping to 3.7% in November. Wage growth likely printed 0.3% m/m.”

It is likely that an upbeat labor market report will challenge the narrative of ‘rate cuts by the Federal Reserve (Fed) from March’. The chances of an interest rate reduction from March have dropped recently as Fed policymakers have been emphasizing on keeping interest rates higher for a longer period.

On the Australian Dollar front, investors will focus on monthly Retail Sales for November, which will be published on Tuesday. As per the estimates, the consumer spending grew by 1.2% after contracting 0.2% in October. This may allow Reserve Bank of Australia (RBA) policymakers to stay with argument of keeping interest rates elevated for longer.