Australian Dollar retraces amid mixed labor data, hawkish Fed tone, and resilient US economy.

The Australian Dollar (AUD) came under pressure on Thursday following the release of mixed labor market data from Australia, interrupting a six-day winning streak against the US Dollar (USD). The AUDUSD currency pair slid after the Australian Bureau of Statistics (ABS) reported a softer-than-expected Employment Change figure and a modest rise in the Unemployment Rate for March. Meanwhile, the Greenback gained strength on the back of robust US retail sales, mounting consumer spending, and fading prospects for aggressive Federal Reserve interest rate cuts.

Australia’s Labor Market Data Weighs on AUD.

The latest employment figures from Australia painted a mixed picture. The economy added 32.2K new jobs in March, falling short of the consensus forecast of 40K, suggesting slower momentum in hiring. Meanwhile, the Unemployment Rate edged up to 4.1%, though it came in slightly below market expectations of 4.2%. Despite the moderate miss, the data signals some softening in Australia’s labor market — a key consideration for the Reserve Bank of Australia (RBA) as it evaluates the trajectory of its monetary policy.

The slight uptick in unemployment, though not dramatic, points to a labor market that may be gradually cooling. This development could reinforce expectations that the RBA might pivot toward monetary easing sooner than previously thought. Traders are currently pricing in a 25 basis-point rate cut in May, with nearly 120 basis points of total easing anticipated over the next 12 months.

On the domestic front, the RBA’s April Meeting Minutes indicated policymakers remain cautious about the economic outlook and are awaiting further clarity before deciding on any policy changes. While the minutes hinted that the May meeting could be a potential turning point, they also reflected a high degree of uncertainty, leaving markets guessing about the timing and extent of any future rate adjustments.

Global Sentiment Supports AUD, but Only Marginally

Despite the domestic data miss, the Australian Dollar received limited support from improved global risk sentiment. This came after US President Donald Trump announced exemptions on proposed tariffs affecting key technology imports such as smartphones, computers, semiconductors, solar cells, and flat-panel displays. These exemptions are particularly important for China — Australia’s largest trading partner — and indirectly support the Australian economy by reducing headwinds for Chinese manufacturing and commodity demand.

However, the relief may be temporary. The Trump administration is still considering additional tariffs on semiconductors and pharmaceuticals, signaling that trade tensions remain an ongoing concern for markets and global growth. Such uncertainty could limit AUD upside in the short term, especially if risk sentiment begins to deteriorate again.

US Dollar Finds Renewed Strength in Consumer Spending Surge

Across the Pacific, the US Dollar surged, buoyed by stronger-than-expected retail sales data and hawkish commentary from Federal Reserve officials. According to the latest data, US Retail Sales rose by 1.4% in March, beating both the market forecast of 1.3% and February’s 0.2% increase. This robust increase suggests that American consumers are still spending despite elevated borrowing costs and lingering inflation concerns.

The US Dollar Index (DXY), which tracks the USD against a basket of major currencies, climbed near 99.60, reflecting broad-based strength as investors dial back expectations for aggressive Fed rate cuts.

Meanwhile, Atlanta Fed President Raphael Bostic reinforced a cautious tone, stating the central bank still has a long road ahead to bring inflation back to its 2% target. His comments suggest the Fed is unlikely to deliver the number of rate cuts currently priced in by markets, especially in the face of solid consumer demand and still-tight labor market conditions.

Mixed Inflation Data Adds Complexity to Fed Outlook

While inflation is slowing, it is not yet at levels that would justify significant policy easing. The US Consumer Price Index (CPI) for March showed a decline in headline inflation to 2.4% year-over-year, down from February’s 2.8%, and lower than the market forecast of 2.6%. However, Core CPI, which excludes volatile food and energy prices, rose 2.8%, slightly missing expectations but still above the Fed’s comfort zone.

On a monthly basis, headline CPI fell by 0.1%, while core CPI increased just 0.1%, reinforcing the notion that inflationary pressures are gradually easing — but perhaps not fast enough to warrant immediate policy easing.

Adding to the complexity, the New York Fed’s consumer sentiment survey showed a spike in household expectations for higher future inflation, weaker job prospects, and deteriorating credit conditions. This highlights growing consumer pessimism, even as spending remains surprisingly resilient.

Australia’s Economic Momentum Slows, China’s Growth Offers Buffer

Australia’s Westpac Leading Index, a forward-looking gauge of economic activity, showed a decline in momentum. The six-month annualized growth rate slowed to 0.6% in March, down from 0.9% in February. This deceleration could add to concerns about Australia’s medium-term growth trajectory, especially in the face of high interest rates, declining consumer confidence, and a softening housing market.

However, Australia’s economic ties with China could offer a cushion. In the first quarter of 2025, China’s GDP grew by 5.4% year-over-year, beating expectations of 5.1% and maintaining the pace seen in Q4 2024. Although quarterly growth eased to 1.2%, missing the 1.4% forecast, the overall performance suggests China’s recovery is still on track.

China’s Retail Sales soared 5.9% YoY, while Industrial Production jumped 7.7%, both comfortably above expectations. These strong figures signal robust domestic demand and manufacturing activity, which could support Australian exports, especially commodities like iron ore, coal, and LNG.

Outlook for Australian Dollar: Monetary Policy Divergence in Focus.

The near-term trajectory for AUDUSD hinges on the evolving monetary policy divergence between the RBA and the Federal Reserve. On the one hand, the RBA appears increasingly dovish amid slowing domestic growth, a softening labor market, and declining consumer spending. On the other hand, the Fed, while acknowledging disinflationary progress, remains wary of declaring victory and may choose to keep rates higher for longer.

Should incoming Australian data continue to show weakness — particularly in labor market or inflation prints — expectations for RBA rate cuts could intensify, potentially dragging the AUD lower. Conversely, any surprises from the US, especially in inflation or employment metrics, could sway Fed policy bets and influence USD dynamics.

With multiple macroeconomic crosscurrents in play, traders and investors will be closely monitoring upcoming data releases, including the Philly Fed Manufacturing Index, Housing Starts, and Initial Jobless Claims in the US, as well as Australian CPI figures and RBA commentary.