The US dollar gave back most of its gains after a US employment report — one of the most closely watched releases on the economic calendar, given how directly it feeds into Federal Reserve rate expectations — came in far stronger than expected, allowing commodity-linked currencies to recover key technical levels in a volatile session.

According to the data, the US economy added 162,000 jobs, well above the forecast of 56,000, while the unemployment rate held steady at 4.1%. Previous employment figures were also revised higher. The report initially triggered a sharp rise in the dollar, but the US currency subsequently surrendered most of its advance.

A slowdown in annual wage growth was one factor that blunted the impact of the strong jobs print, somewhat reducing its overall effect. Wage data are tracked closely for their bearing on price pressures, as the Fed weighs both employment and inflation when setting policy. The market reaction suggests that even robust employment data have not yet led to a sustained repricing of expectations for the Federal Reserve's future policy.

Attention is now shifting toward US inflation data. A strong labour market reduces the need for rapid Fed easing, but the future path of interest rates will depend to a large extent on how price pressures develop. As a result, the upcoming inflation figures could become the next key driver for the dollar.

AUD/USD

The Australian dollar benefited from the subsequent weakening of the US currency, with AUD/USD reaching fresh recent highs near 0.7200. The Australian currency is also receiving support from expectations that the Reserve Bank of Australia will maintain a relatively hawkish stance, limiting its downside potential — a reflection of how interest-rate differentials remain a persistent influence on the pair.

Technical analysis of AUD/USD points to the possibility of further gains toward the 0.7260–0.7280 area, provided the price holds above 0.7200. A return below 0.7200, followed by a sustained move under that level, would weaken the bullish scenario and increase the likelihood of a corrective decline.

USD/CAD

USD/CAD continues to decline and has approached the August lows around 1.3730. In addition to the weaker US dollar, the Canadian dollar is being supported by oil prices, which remain sensitive to geopolitical tensions surrounding Iran. Canada's standing as a major crude exporter means its currency has long tended to move alongside energy markets.

A sustained move below 1.3730, followed by the level turning into resistance, could open the way for a further decline toward the 1.3520–1.3570 area.

Key events for USD/CAD and AUD/USD today (GMT+3):

• 14:00: US Mortgage Market Index
• 15:15: weekly change in US employment according to ADP
• 23:30: weekly US crude oil inventories according to the American Petroleum Institute (API)

Overall, following the strong NFP report, the dollar failed to hold its initial gains, allowing commodity-linked currencies to return to important technical levels. AUD/USD is testing the area of recent highs, while USD/CAD is approaching its August lows. With a relatively quiet economic calendar, further moves will depend on how expectations for Fed policy are repriced and on positioning ahead of the next US inflation data.

Source: FXOpen Blog