AUD/USD retreats to 0.6660 as investors turn cautious ahead of US NFP

• AUD/USD drops to near 0.6660 as investors are expected to make informed positions after the US NFP report for May.
• The Fed is expected to start reducing interest rates from September.
• Investors see the RBA holding interest rates steady by the year-end.

The AUD/USD pair falls back to 0.6660 while attempting to capture the round-level resistance of 0.6700 in Friday’s London session. The Aussie asset faces pressure as uncertainty ahead of the release of the United States Nonfarm Payrolls (NFP) report for May limits the upside in risk-perceived assets.

The market sentiment turns cautious as the US NFP report is expected to influence market expectations for the Federal Reserve (Fed) rate cuts. S&P 500 futures have turned negative after erasing entire overnight gains, indicating a decline in investors’ risk-appetite. The US Dollar Index (DXY) remains sideways near the crucial support of 104.00.

The US Employment report is expected to show that employers added 185K payrolls, higher than the prior release of 175K. The Unemployment Rate is estimated to have remained steady at 3.9%. Investors will also pay attention to the Average Hourly Earnings data, which gauges wage growth momentum. Annual Average Hourly Earnings are forecasted to have grown steadily by 3.9%. While monthly wage growth is estimated to have risen at a higher pace of 0.3% from the former release of 0.2%.

Upbeat payrolls and wage growth data would diminish hopes of the Fed lowering its interest rates from the current levels. The CME FedWatch tool shows that the Fed would choose the September meeting as the earliest point to start unwinding the restrictive interest rate stance. While soft figures would boost Fed rate-cut expectations for September.

Meanwhile, the Australian Dollar holds gains as the Reserve Bank of Australia (RBA) appears to list as those central banks that are not expected to deliver rate cuts this year. The expectations for RBA rate cuts waned after RBA Governor Michele Bullock delivered hawkish guidance on the interest rate outlook on Wednesday. Bullock indicated that the central bank is prepared to increase interest rates further if inflation doesn’t return to the target range of 1%-3%. Apart from the RBA, the Reserve Bank of New Zealand (RBNZ) is also expected to consider rolling back its tight interest-rate stance next year.