Australian dollar powers higher, nonfarm payrolls next

• Australian dollar has surged around 2% since Wednesday
• US Senate approves debt ceiling bill
• Nonfarm payrolls expected to drop to 190,000

The Australian dollar is on a tear. AUD/USD jumped 1% on Thursday and has added another 0.86% today and is trading at 0.6629.

The US dollar retreated against the majors on Thursday, as news of a debt ceiling agreement raised risk appetite. The markets are breathing a sigh of relief, as the dangerous game of brinkmanship between the Republicans and Democrats is over, as the Senate approved the measure with lightning speed on Thursday.

The Australian dollar also received a helping hand from Chinese manufacturing data. Caixin Manufacturing PMI showed a slight improvement to 50.9 up from 49.5, which was also the consensus. Importantly, this shows slight expansion, after the official Manufacturing PMI pointed to contraction, falling from 49.4 to 48.8. The 50.0 level separates contraction from expansion.

Will nonfarm payrolls surprise the markets?

In the US, it should be an interesting end to the week, with the release of nonfarm payrolls. The ADP employment report, which precedes nonfarm payrolls, was strong, coming in at 278,000, down slightly from 291,000 and crushing the consensus of 170,000. Investors don’t consider the ADP all that reliable, but there are other indications that the US labour market remains resilient, such as Thursday’s solid unemployment claims report. Nonfarm payrolls are expected to fall from 253,000 to 190,000, which would be the smallest gain since December 2020.

If nonfarm payrolls mimic the ADP and surprise on the upside, that could cement a rate hike at the meeting on June 14th. The Fed would like to take a pause, but that will require evidence that the employment market is showing signs of cooling off.

Market expectations for Fed rates have been swinging wildly in recent weeks, from pause to hike and back to pause. A surprise from nonfarm payrolls could cause yet another swing in market expectations.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6627. The next resistance line is 0.6736
• 0.6559 and 0.6450 are providing support

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