AUD/USD corrects to near 0.6550 amid caution ahead of US NFP

• AUD/USD drops to near 0.6550 as investors turn cautious ahead of US labor market data.
• Resilience in the US labor market and oil recovery could discomfort Fed policymakers.
• The RBA conveyed that inflation is moving positively towards 2%, reaching the target by late 2025.

The AUD/USD pair corrects sharply after facing tough barricades around 0.6590 in the European session. The Aussie asset drops as the US Dollar Index (DXY) rebounds confidently ahead of the United States Nonfarm Payrolls (NFP) data, which will be published at 12:30 GMT.

S&P500 futures added some significant gains in London, portraying strength in US equities as investors digest Fitch’s downgrade to the US government long-term debt rating. The US Dollar Index (DXY) rebounds after discovering significant strength near 102.40 as investors hope outperformance from the labor market report.

Analysts at TD Securities see payrolls have clearly lost momentum over the past year, but they remain above levels that are consistent with a gradual rise in the Unemployment Rate. Economists forecast the jobless rate to drop again to 3.5% following its unexpected jump to 3.7% in May, as the participation rate to remain largely steady at 62.6% amid still strong job creation. Wage growth likely fell to 0.3% monthly, dragging the annual pace lower at 4.2% from 4.4% in June.

Resilience in the US labor market could discomfort Federal Reserve (Fed) policymakers as chances of a recovery in inflationary pressures will emerge. Also, global oil prices are showing strength after a stellar recovery for further gains. US inflation has already come all the way from 9.1% to below 4% but labor market resilience and oil recovery could heat up and trigger a recovery.

Meanwhile, less-hawkish Reserve Bank of Australia (RBA) minutes of August monetary policy fails to provide support to the Australian Dollar. RBA policymakers conveyed that some further tightening may be required. Australian central bank conveyed that inflation is moving positively towards 2%, reaching a target by late 2025.