The Australian Dollar (AUD) edged lower against the US Dollar (USD) on Friday as traders adopted a cautious stance ahead of the highly anticipated US Nonfarm Payrolls (NFP) report. The AUD/USD pair is expected to maintain relative stability as market participants await fresh economic signals from the US labor market.
Sentiment received a boost earlier in the week following a constructive phone conversation between US President Donald Trump and Chinese President Xi Jinping. Trump described the discussion as productive and expressed readiness to continue tariff negotiations. Nonetheless, tensions remain, with Trump’s team reportedly struggling to maintain composure in talks with Chinese trade officials. Given the close trade relationship between Australia and China, any shifts in China’s economic outlook could significantly affect the AUD.
Minutes from the Reserve Bank of Australia’s (RBA) May meeting revealed policymakers’ growing support for a cautious 25 basis point rate cut. RBA Assistant Governor Sarah Hunter warned that rising US tariffs could hinder the global economy and increase uncertainty, potentially dampening Australian investment, output, and employment.
The US Dollar Index (DXY), which tracks the USD against six major currencies, strengthened to approximately 98.80. Analysts forecast the May NFP report will show 130,000 jobs added, a slowdown from April’s 177,000. The unemployment rate is projected to hold steady at 4.2%.
Recent US labor data has shown mixed signals: weekly jobless claims rose to 247,000, surpassing expectations, while May’s private sector employment growth, reported by ADP, was weaker than anticipated at 37,000 new jobs. Additionally, the Institute for Supply Management’s (ISM) Services PMI dropped to 49.9 in May, falling short of the expected expansion.
President Trump publicly urged Federal Reserve Chairman Jerome Powell to cut interest rates, citing the disappointing ADP numbers. Meanwhile, Minneapolis Fed President Neel Kashkari described the labor market as showing signs of slowing and emphasized the need for a cautious approach amid ongoing economic uncertainty.
In Washington, House Republicans advanced Trump’s multitrillion-dollar “Big Beautiful Bill,” raising concerns about rising fiscal deficits and prolonged higher bond yields. This development has fueled a “Sell America” trend as investors reconsider US assets. The Senate is expected to review the bill, targeting a July 4 deadline for finalization.
Elon Musk, once a prominent Trump supporter, has recently criticized the budget proposal, arguing that it fails to lock in the federal spending cuts he enacted early in Trump’s second term.
Trade tensions persist as Trump accused China of violating a recent tariff truce agreed upon in Geneva, claims Beijing denies, asserting compliance with tariff and non-tariff barrier commitments.
China’s economic data showed mixed results: the Caixin Manufacturing PMI unexpectedly contracted to 48.3 in May, while the official National Bureau of Statistics’ PMI rose slightly. Meanwhile, the Non-Manufacturing PMI fell short of expectations. These indicators could influence the AUD due to Australia’s close trade ties with China.
Australia’s trade surplus narrowed in April to AUD 5.4 billion, below forecasts, amid a decline in exports and a rise in imports. GDP growth slowed to 0.2% in Q1, underperforming expectations, while annual growth remained modest at 1.3%.
Technically, the AUD/USD pair trades near 0.6510, maintaining a bullish bias within an ascending channel. The pair’s short-term momentum remains robust, supported by the nine-day Exponential Moving Average and a Relative Strength Index above 50. Resistance lies near the seven-month high of 0.6538 and the upper channel boundary around 0.6680. Support is seen at 0.6478 and the 50-day EMA near 0.6405, with a breach potentially weakening the bullish outlook.
As investors await critical US employment data, the Australian Dollar’s direction will hinge on the interplay of global trade developments and economic indicators from both the US and China.
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