AUDUSD Rebounds as US Dollar Stumbles on Disappointing Jobs and Services Data
The Australian Dollar (AUDUSD) staged a modest comeback against the US Dollar (USD) on Wednesday, buoyed by broad-based weakness in the Greenback following weaker-than-expected US labor market and services sector data. Despite lackluster Australian GDP figures and soft PMI readings, AUD/USD rebounded toward the key 0.6500 resistance level, driven primarily by a risk-sensitive shift in investor sentiment and repricing of Federal Reserve expectations.
Greenback Falters on ADP Employment and ISM Services Disappointment
The US Dollar came under renewed selling pressure as Wednesday’s economic reports painted a bleaker picture of the US economy than previously anticipated. The ADP Employment Change report revealed that private employers added just 37,000 jobs in May, a sharp miss from the forecast of 115,000. Notably, this marks the weakest pace of job creation since March 2023, and April’s figure was revised down to 60,000 from 62,000.
Meanwhile, the ISM Services PMI—a key barometer for the largest sector in the US economy—unexpectedly fell into contraction territory, dropping to 49.9 from 51.6 in April. Markets had expected a reading of 52, indicating mild expansion. This marks the first contraction in the US services sector in 2025, amplifying concerns that the post-pandemic recovery in the US labor and service industries is beginning to stall.
In response, the US Dollar Index (DXY) dropped from Tuesday’s high near 99.00 to around 98.85, reflecting a broad pullback in the Greenback across major currency pairs.
AUDUSD Rebounds Despite Weak Domestic Data
Despite subdued economic data from Australia, the AUDUSD pair rebounded off a key support level near 0.6450, edging higher toward the 0.6500 psychological threshold. This move was largely attributed to USD weakness, rather than any substantial strength in the Australian economic outlook.
Australian GDP growth for Q1 came in at 0.2% quarter-on-quarter, below the expected 0.4% and down sharply from the 0.6% gain recorded in Q4 2024. On a year-over-year basis, the economy grew by 1.1%, well below the Reserve Bank of Australia’s (RBA) longer-term potential growth forecast. This marks the weakest quarterly expansion in three quarters, suggesting slowing momentum in consumer spending and investment amid tighter financial conditions.
Adding to concerns, PMI data painted a similar picture of economic fragility. The S&P Global Australia Composite PMI slipped slightly to 50.5 in May from 50.6 in April, indicating marginal growth. The Services PMI, however, posted a minor improvement, rising to 50.6 from 50.5, though still reflecting weak demand-side activity and cautious business sentiment.
Federal Reserve Rate Cut Bets Strengthen
The weak US data fueled a dovish repricing of Federal Reserve monetary policy expectations, with investors increasing bets that the Fed may cut rates sooner and more aggressively than previously thought. Fed funds futures now imply a growing probability of a September rate cut, with some analysts eyeing two 25 basis point cuts before year-end if labor market deterioration persists.
This potential policy divergence between the Fed and the RBA may help limit the downside for AUDUSD in the near term. While the Fed is inching toward easing, the RBA remains cautious and data-dependent. Although weak GDP growth raises the risk of a slowdown, inflation remains sticky in Australia, particularly in the services sector, giving the central bank room to remain on hold longer than the Fed.
Risk Sentiment Lends Support to AUD
The Australian Dollar, often seen as a proxy for global risk appetite, also found support amid improving market sentiment. The soft US data led to a decline in US Treasury yields, boosting equity markets and supporting high-beta currencies such as the AUD.
Markets are also hopeful that US-China trade tensions might ease, as reports suggest US President Donald Trump and Chinese President Xi Jinping may hold a phone call this week to discuss trade barriers and tariffs. Any progress in talks could benefit Australia, given its close trade ties with China.
Technical View: AUDUSD Faces Stiff Resistance Near 0.6500
From a technical standpoint, AUDUSD has staged a short-term recovery from the 0.6450 support zone, which aligns with the lower end of its recent trading range. However, the pair remains capped by the 0.6500 resistance level, which has proven difficult to breach in multiple attempts this week.
- Immediate support lies near 0.6450, followed by 0.6420 and the April low of 0.6385.
- Key resistance remains at 0.6500, and a daily close above this level could open the door to 0.6550 and 0.6600 in the short term.
- Technical indicators such as the Relative Strength Index (RSI) and MACD on the daily chart are showing signs of bullish divergence, suggesting potential upward momentum if fundamental drivers align.
Australia’s Trade Data and US NFP in Focus
Looking ahead, Australia’s trade balance data will be released on Thursday and could offer fresh insights into the health of the export sector. A strong surplus could lend further support to the Aussie.
The main event, however, will be Friday’s US Nonfarm Payrolls (NFP) report. Markets are forecasting a gain of 115,000 jobs in May, up from 62,000 in April. A weaker-than-expected print could further weigh on the US Dollar, pushing AUD/USD higher.
Conversely, a strong NFP report may reinforce labor market resilience, potentially putting a floor under the USD and limiting AUDUSD upside.
Conclusion: AUDUSD Rebound Faces Key Test
While AUDUSD has managed to recover lost ground, the rally remains fragile and heavily dependent on the direction of US economic data. With the RBA’s path forward clouded by weak growth and persistent inflation, and the Fed increasingly likely to pivot toward rate cuts, the pair could see heightened volatility in the coming days.
The 0.6500 level remains a crucial battleground. A decisive break above would signal a shift in sentiment and may encourage further buying interest. Until then, the pair is likely to remain range-bound, trading in a cautious, data-sensitive environment.
