Australian dollar edges higher ahead of jobs data

• Australian dollar rebounds
• Australian job growth expected to decelerate
• Federal Reserve likely to pause for third straight time

The Australian dollar is in positive territory on Wednesday, after three straight losing sessions. In the North American session, AUD/USD is trading at 0.6584, up 0.38%.

Will Powell push back against rate cut expectations?

Today’s Federal Reserve’s rate announcement will almost certainly be a pause, which would mark the third consecutive time that the Fed held the benchmark rate at the target range of 5.25%-5.50%. That doesn’t mean the meeting isn’t significant, as investors will be looking for clues to the Fed’s rate plans next year.

The markets have scaled back their forecasts of rate cuts in 2024 after the stronger-than-expected job report on Friday and yesterday’s inflation release, which showed that inflation remains high. Earlier in December, the markets were pricing in around five quarter-point cuts in 2024 but that has been trimmed to four cuts.

That view is miles apart from that of the Fed, which has insisted that it hasn’t shut the door to further rate hikes and has warned that inflation remains too high. If Powell reiterates this hawkish stance and pushes back against rate hike expectations, the market would likely be forced to again reduce expectations of a rate cut.

Australia will release the November job report on Thursday. The economy is expected to have created 11,000 jobs, compared to 55,000 in October. The unemployment rate has been inching higher and is expected to rise to 3.8%, up from 3.7% in November. The Reserve Bank of Australia has repeatedly said that future rate decisions will be data-dependent and the strength of the labour market is a key factor that will be closely watched by RBA policy makers.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6598. Above, there is resistance at 0.6671
• 0.6506 and 0.6433 are providing support

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