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• Australian Dollar rebounds after Thursday’s sell-off triggered by weak jobs data.
• A softer US Dollar and falling Treasury yields ease pressure on the Aussie.
• US Michigan Consumer Sentiment beats expectations but fails to lift the Greenback.

The Australian Dollar (AUD) is recovering lost ground on Friday after a sharp sell-off on Thursday, which was fueled by weaker-than-expected jobs data. The rebound is supported by a softer US Dollar and a rise in Australia’s 10-year government bond yield, which is easing pressure on the Aussie. Market sentiment remains cautious, however, as expectations grow for a potential interest rate cut by the Reserve Bank of Australia (RBA) at its August meeting.

The AUD/USD is holding steady during Friday’s American session, clinging to its intraday gains and trading near Thursday’s high around 0.6527. The upside is further fueled by a sharp rebound in iron ore prices, as renewed optimism over additional economic support from China has boosted demand for the commodity-linked Aussie.

Meanwhile, the US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, remains under pressure near 98.25, erasing most of its weekly gains. Despite a solid Michigan Consumer Sentiment report, the DXY is holding losses as the data lacked the punch to revive bullish momentum.

The University of Michigan’s preliminary Consumer Sentiment Index for July rose to 61.8 from 60.7 in June, beating expectations of 61.5.

Despite the modest uptick in US consumer sentiment, markets remain more focused on the uncertainty surrounding the Federal Reserve’s (Fed) next move. Diverging views from Fed officials have clouded the policy outlook, leading to a dip in US Treasury yields. The softer yields are weighing on the US Dollar and giving the Australian Dollar some breathing room amid an otherwise cautious trading environment.

The RBA held its benchmark rate steady at 3.85% during its July meeting, but fresh data released this week has only strengthened the case for a rate cut in August. The June employment report showed a surprising jump in the Unemployment Rate to 4.3%, the highest level in over three years, while Employment change increased by just 2K, well below the expected 20K gain.

Markets are now fully pricing in a 25-basis-point cut in August, with some speculation building around a potential follow-up move later this year.

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