AUD/USD holds onto losses near 0.6400 while US NFP takes centre stage

• AUD/USD trades close to its monthly low around 0.6420 as the US Dollar demonstrates strength.
• The RBA is expected to cut interest rates in the policy meeting this month.
• Investors await the US NFP data for July.

The AUD/USD pair trades vulnerably near its monthly low around 0.6420 during the European trading session on Friday. The Aussie pair faces selling pressure as the US Dollar (USD) extends its upside, while investors awaiting the United States (US) Nonfarm Payrolls (NFP) report for July, which will be published at 12:30 GMT.

During European trading hours, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh two-month high near 100.10.

Economists expect the US economy to have added 110K fresh workers, lower than 147K jobs created in June. The Unemployment Rate is seen higher at 4.2%, against 4.1% in June. Meanwhile, Average Hourly Earnings, a key measure of wage growth, is estimated to have grown at a faster pace on monthly as well as on annual basis.

Signs of steady labor market conditions would allow Federal Reserve (Fed) officials to support for keeping interest rates at their current levels. On Wednesday, the Fed held borrowing rates steady in the of 4.25%-4.50% for the fifth time in a row and, Chair Jerome Powell guided that there is no rush for interest rate cuts.

Meanwhile, solid market expectations that the Reserve Bank of Australia (RBA) will reduce interest rates by 25 basis points (bps) to 3.6% in the policy meeting this month have kept the Australian Dollar (AUD) on the back foot.

Secondly, an unexpected decline the Caixin Manufacturing PMI has also weighed on the Aussie. Caixin Manufacturing PMI came in at 49.5 against estimates of 50.3 and the prior reading of 50.4. A figure below the 50.0 threshold is considered as contraction in economic activities.

Given that the Australian economy relies heavily on its exports to China. Weak manufacturing data from the Asian giant weighs heavily on the Australian Dollar.