US jobs spike sends Aussie dollar lower and rattles investors

A robust US jobs report has fuelled rate-cut doubts, sending Wall Street tumbling, the Aussie dollar sliding and will unnerve local investors.

A trader on the floor of the New York Stock Exchange last week. Photo: SPENCER PLATT / GETTY IMAGES NORTH AMERICA / Getty Images via AFP

The Australian dollar and local sharemarket are in for a rough trot after a robust US jobs report dimmed hopes of further interest rate cuts, sending Wall St tumbling and the greenback soaring.

Futures indicate the S&P/ASX 200 will slump 0.9 per cent when it opens on Monday, wiping 71 points from last week’s 8294 point close.

“Financial markets were pricing in three or four Fed rate cuts and now they are just pricing in one – around the middle of the year,” said AMP Capital chief economist Shane Oliver.

The US economy defied expectations of a slowdown in jobs growth, adding 256,000 positions last month, up from a revised 212,000 in November and smashing market expectations of between 150,000 and 160,000 jobs. The unemployment rate ticked down to 4.1 per cent.

Briefing.com analyst Patrick O’Hare said the jobs report suggested “the Fed may have made a mistake cutting rates as aggressively as it did at the end of 2024”.

Bret Kenwell at eToro trading platform said while investors might not have liked the data, a strong jobs market was needed to keep consumers spending, which was the motor of the US economy.

“Investors need to keep that in mind – even if that means rate-cut expectations take a step back,” he added.

The stronger US economy reduces the likelihood of the Federal Reserve cutting interest rates quickly.

The US economy defied expectations of a slowdown, adding 256,000 jobs last month. Photo: ANDREW CABALLERO-REYNOLDS / AFP

Also casting a shadow over the outlook for the US economy and global markets is incoming president Donald Trump’s plans to slash taxes, regulations and immigration – and to impose harsh tariffs on imports – which are expected to reignite price increases, adding to inflation.

But the jobs data lit a fuse under bond yields and the US dollar overnight on Friday and caused sentiment towards equities to sour, sending Wall Street sharply into the red.

The Dow Jones Industrial Average and the tech-focused Nasdaq Composite both plunged 1.6 percent, while the broader S&P 500 Index fell 1.5 per cent.

Among individual companies, Apple shed 2.4 per cent and Nvidia shares fell 3 per cent.

“The rough start to the year is set to continue,” Dr Oliver said, noting that the local bourse would not fall as much as Wall Street because Australian shares did not trade as strongly last year. “The US market is coming off a couple of strong years.”

The ASX 200 only rose 7.5 per cent in 2024, compared to the S&P 500’s 23.3 per cent spike.

Dr Oliver said the Australian market was becoming increasingly confident that the Reserve Bank would cut rates soon, the first decline since October, 2020.

“The money market here is pricing in three cuts ... and it is looking increasingly likely that we will see a cut here in February,” Dr Oliver said.

Dr Oliver said the Australian dollar, which was trading around US61.5c, could head towards US60c over coming months.

He said most companies on the ASX 200 should benefit from a lower Aussie dollar, so it should be a positive for the market. But he said lower iron ore prices, the differential with US interest rates and Trump’s tariff policies would weigh on the Aussie dollar.

“I wouldn’t be surprised if we see it going down to US60c in the next few months,” he said.

The falling Aussie dollar will also be a concern for the RBA board as it deliberates on interest rates.

“But ultimately they are going to take their cue from inflation,” Dr Oliver said.

For the week ahead, volumes traded on the ASX will remain low due to the summer holidays. Investors will keep an eye out for building approval figures due out on Tuesday and labour force data on Thursday.

Additional reporting: AFP

Originally published as US jobs spike sends Aussie dollar lower and rattles investors