The October US employment report has come in ahead of expectations, and the US dollar is rallying against other currencies as a result.

The print of 271,000 jobs in October blew away the markets expectation of a solid rise of 180,000 and drove the US dollar higher across the board.

The Australian dollar, on the front line of what looks like a seismic shift in global markets as the Fed gets set to increase rates in the US for the first time since 2006, dropped more than 120 points at the low, holding just above the 70 cents level and important support.

AUDUSD – AxiTrader MT4

The employment data from the US is considered critical to the decision-making process for the US Federal Reserve. Financial markets worldwide have been waiting for the Fed to increase its basic interest rate setting, which would increase the cost of borrowing money but also signal confidence in the US recovery.

Fed fund futures, which reflect the market’s expectations of what the Fed will do at the December meeting, are now pricing a 70% chance of a rate hike. That’s the important threshold that larry Summers, who was once considered the frontrunner to be Chairman of the Federal Reserve, argues is the key level that the points to a tightening.

“In the last 20 years, the Fed has never tightened without guiding the futures market to at least a 70% chance of a tightening,” Summers said back in September.


That’s important because on Thursday US time Atlanta Fed President said the central bank was successful in shifting market expectations about the possibility of a rate hike at the December meeting.

That was almost a lock but non-farm payrolls have all but guaranteed rates will rise in the US for the first time since 2006 after the Fed’s meeting on December 16.

That’s the seismic shift that global markets and traders will have to grapple with. It’s also the seismic shift most pundits have been waiting for to knock the Australian dollar down into the mid 60 cent region.