AUD/USD awaits critical jobs data this week

• AUD/USD is sidelined as markets ditch the hawkish theme leaving global yields on the backfoot. 
• Higher yielders in forex have suffered in recent sessions which now leaves AUD hanging in the balance of risk sentiment for the open. 
• AUD/USD awaits the next domestic catalyst in Aussie jobs data Nov 11. 

AUD/USD ended the week sharply lower on Friday, failing to capitalise on the strength in the US stock market and an unwind of the bearish market positioning. Despite a solid Nonfarm Payrolls outcome, the US dollar was unable to perform as fixed income rallied. AUD/USD ended Friday flat at 0.74 the figure and had travelled between a low of 0.7360 and a high of 0.7412. 

US Nonfarm Payrolls was expected to be a supportive factor for the US dollar, but that wasn't to be. Instead, while hitting its highest level in more than a year, as measured by the DXY index, the safe-haven currency pulled back a bit as risk appetite improved and stocks staged a broad rally. While the jobs report was strong, there remained more of a focus on central banks which have erred on the patient side.

Central banks in focus

Last week, there were central bank meetings from the Reserve Bank of Australia, the Federal Reserve and the Bank of England. ''All three emphasised the transitory nature of inflation, expectations of how far interest rates may rise were reined in as bearish market positioning unwound,'' analysts at ANZ Bank explained in a note at the start of the week. ''Central banks are still hesitant, believing that current inflation pressures, whilst proving more lasting than initially thought, will pass.'' This has seen the US 10-year yield crumble from a restest of the daily counter-trendline into the 1.4550% territory. The more central bank sensitive yield, the 2-year fell a whopping 5.37% on the day on Friday. Consequently, the DXY index is struggling and the low yielding FX is faring the best, leaving AUD somewhat sidelined. 

The RBA discontinued its policy of yield curve control on Tuesday and flagged the possibility of an earlier increase in the Cash Rate Target in 2023 instead of 2024. However, the central bank pushed back against the hawkish repricing of recent weeks, stating that the “return of underlying inflation to the midpoint of the target range for the first time in 7 years does not, by itself, warrant an increase in the cash rate”.

For the week ahead, Aussie jobs data will be important this Thursday.  ''The RBA is upbeat on the labour market and expects jobs to fully recover to pre-Delta levels (Aug) by year-end (as stated in its Nov SoMP),'' analysts at TD Securities explained. ''There is still a shortfall of 284k jobs and jobs could return quickly given the easing in restrictions in NSW and VIC. The participation rate is expected to pick up to 65% in tandem with the reopening, bringing the u/e rate to 4.7% from 4.6%.''