• US nonfarm payrolls expected to slow to 170,000
• RBA financial stability report points to trouble for householders

The Australian dollar is drifting on Friday. In the European session, AUD/USD is trading at 0.6364, down 0.10%. The lack of movement could change in the North American session, with the release of US nonfarm payrolls.

All eyes on US nonfarm payrolls 

The markets are waiting for today’s US nonfarm payroll reports, one of the most important economic indicators. Nonfarm payrolls has lost some of its luster in the era of high inflation, as inflation reports became a key gauge of rate policy. With inflation falling to lower levels, nonfarm payrolls are again attracting a lot of attention from investors.

The US labour market has been resilient in the face of steep tightening by the Federal Reserve but is showing some cracks. The unemployment rate has been creeping higher and hit 3.8% in August, the highest level in 18 months. Nonfarm payrolls have fallen below the 200,000 level for three straight months and is expected to slow to 170,000 in September, down from 187,000 in August.

The markets like to look at employment releases just prior to nonfarm payrolls, and although these releases make the financial headlines, it’s questionable if they provide much guidance. This week’s JOLTS Job Openings report climbed to 9.61 million in August, up sharply from 8.92 million in July and much higher than the market consensus of 8.8 million. The strong reading sent the stock markets lower as a tighter labour market would put more pressure on the Fed to maintain elevated interest rates. A stronger-than-expected nonfarm payrolls would likely weigh on the stock markets and boost the US dollar.

The Reserve Bank of Australia released its financial stability report today. These reports used to make for dull reading but with inflation and high mortgage rates squeezing households, there is more concern about the financial system. The RBA found that Australia’s financial system remains strong, but noted that five per cent of mortgage holders are struggling to pay their mortgages and are facing “financial stress”.

This observation is a sign that the central bank is aware of the pain householders are going through and will try to avoid further rate hikes, even though RBA Governor Bullock has stated that additional rate increases remain on the table.

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AUD/USD Technical

• AUD/USD has support at 0.6345 and 0.6254
• There is resistance at 0.6432 and 0.6514

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