Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD is consolidating near 0.7000 after strong Australia employment data. Solid June job gains keep Reserve Bank of Australia (RBA) hike expectations alive, with cash rate futures now virtually fully pricing a move to 4.60% by year‑end. Haddad, however, sees risks skewed toward a more extended RBA pause, posing a headwind for the Australian Dollar.

Strong jobs but policy pause risk

"AUD/USD is consolidating around 0.7000. Australia’s solid June labor force survey will keep RBA rate hike bets live. The economy added more jobs than anticipated in June (actual+76.3k, consensus: +15.0k, May: +44.0k), with full-time employment up +29.3k and part-time employment up +47.0k."

"In line with consensus, the unemployment rate was unchanged at 4.4% for a second straight month, leaving it marginally above the RBA’s 4.2% projection. But that’s largely because more people entered the labor force as the participation rate rose +0.3ppt to near a one year high at 67.0%."

"RBA cash rate futures virtually fully price in a 25bps hike to 4.60% by year end, up from roughly 60% before the data. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle which is a headwind for AUD."

"First, the RBA projects real GDP growth to be below potential over the next two years. Second, the RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)