Australian Dollar reacts little to dismal jobs data; holds above weekly low vs weaker JPY

• AUD/JPY dips in reaction to dismal Australian jobs data, though it lacks follow-through selling.
• Japan’s fiscal woes and the wide rate gap undermine the JPY, lending support to spot prices.
• Weakness below the weekly trough is needed to back the case for any further corrective slide.

The AUD/JPY cross attracts some sellers following the release of a dismal Australian jobs report, though it lacks follow-through and holds above the weekly low touched the previous day. Spot prices currently trade with modest gains around the 112.75 region and, for now, seem to have snapped a two-day losing streak.

According to the official data published by the Australian Bureau of Statistics (ABS), the Unemployment Rate climbed to 4.5% in July from 4.4% in the previous month. Additional details revealed that the number of employed people fell by 15.8K during the reported month, down from a rise of 76.3K in June and missing estimates for a 15K rise. This comes on top of soft Australian Q2 CPI inflation data and forced traders to pare back bets for an immediate rate hike by the Reserve Bank of Australia (RBA), which is seen as weighing on the Australian Dollar (AUD) and the AUD/JPY cross.

Strategists at Rabobank highlight that market expectations for further RBA tightening remain muted, with "market implied policy rates currently priced for just 12 bps of rate hikes on a 3-month view." They note that broader market commentary is increasingly focused on a "list of headwinds including weaker Chinese demand for Australian commodities and a softer domestic economic climate" as factors "potentially undermining the AUD going forward."

The Japanese Yen (JPY), on the other hand, came under some selling pressure in reaction to rather unimpressive domestic trade data, which showed a deficit of ¥634.5 billion in July. Apart from this, concerns about Japan's worsening fiscal condition, along with the wide interest rate gap between Japan and other major economies, continue to undermine the JPY and help limit the downside for the AUD/JPY cross. Hence, some follow-through selling is needed to back the case for an extension of this week's retracement slide from the 113.60 region, or the monthly swing high.