Australian dollar outpaces G10 counterparts
The Australian dollar (AUD) led the G10 currencies last week, gaining 1.45% against the United States dollar (USD) to close at around 0.6650.
This strong gain saw it outpace its antipodean counterpart, the New Zealand dollar, which gained 1.10%, as well as the Japanese yen (0.18%), the euro (0.15%), and the British pound (0.38%).
Federal Reserve rate cut expectations influence markets
This rally in AUD/USD indicated a risk-on mood in markets and low volatility, spurred by expectations that the Federal Reserve (Fed) is set to resume its rate-cutting cycle this week in response to a cooling US labour market and rising risks of recession.
Commodity markets also provided support. Iron ore, a cornerstone of Australia’s export economy, rose approximately 1% last week to settle at $105.70, its highest close since February 2025. The gains in iron ore reflect resumed steel production in China following pollution-related curbs for a military parade, alongside tighter global supplies from major exporters like Australia and Brazil.
Looking ahead, AUD/USD’s upside progress will likely depend on this Thursday morning’s Fed interest rate meeting and a labour force update in Australia later the same day.
AU: Unemployment
Date: Thursday, 18 September at 11.30am AEST
For July, employment in Australia rose by 24,500 jobs, in line with the 25,000 gain the market expected. The unemployment rate eased to 4.2% from 4.3% prior, as the participation rate held steady at 67%.
Sean Crick, Australian Bureau of Statistics (ABS) head of labour statistics, said: ‘With employment rising by 25,000 people and the number of unemployed decreasing by 10,000 people, the unemployment rate fell by 0.1 percentage points to 4.2 per cent in July.’
The solid employment report validated the Reserve Bank of Australia’s (RBA) cautious approach to rate cuts and reinforced expectations that it will remain a cautious cutter, given concerns about a tight labour market and upward pressure on wages.
The preliminary expectation for August is that the Australian economy will add 20,000 jobs and the unemployment rate will remain at 4.2%. If the numbers align with these expectations, the RBA is likely to cut rates by 25 basis points (bp) in November, bringing the cash rate back to 3.35%.
The Australian interest rate market begins the week with 19 bp of a 25 bp rate cut priced for November. After that, another 25 bp rate cut from the RBA is priced for May 2026.