The Australian Dollar (AUD) experienced a period of consolidation following the release of lower-than-expected NBS Purchasing Managers Index (PMI) data from China. This development is significant due to the close trade ties between Australia and China, with changes in the Chinese economy often impacting the Australian market. However, earlier in the day, the AUD/USD pair had seen gains as the US Dollar (USD) faced challenges stemming from a slowdown in the US economy.
Support for the AUD was also buoyed by the acceleration in the monthly inflation rate to 3.6%, raising the prospect of potential interest rate hikes by the Reserve Bank of Australia (RBA). Investors are anticipating that the RBA may maintain high rates for an extended period, with a rate cut not anticipated until May of the following year.
Meanwhile, the US Dollar Index (DXY), which measures the USD against six major currencies, could encounter pressure from a decline in US Treasury yields. This comes after the US Gross Domestic Product (GDP) Annualized growth rate was revised lower to 1.3% from 1.6% for the first quarter. Traders are keenly awaiting the release of the Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, slated for release on Friday.
Market Highlights:
China’s NBS Manufacturing Purchasing Managers Index (PMI) for May fell to 49.5 from April’s 50.4, missing expectations for an increase to 50.5. The Non-Manufacturing PMI also declined to 51.1 from the previous reading of 51.2.
Australia’s Private Capital Expenditure rose by 1.0% in Q1, surpassing expectations for a 0.5% increase.
Dallas Fed President Lorie Logan reiterated concerns about inflationary risks despite recent easing, emphasizing the need for flexibility in monetary policy.
RBA Assistant Governor Sarah Hunter highlighted inflationary pressures, expressing concerns about inflation persisting above the target range of 1%-3%.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested that rate hikes are still a possibility, emphasizing uncertainty about the disinflationary process.
Technical analysis indicates a bullish bias for the AUD/USD pair, with potential targets at 0.6700 and 0.6714. Immediate support is seen at 0.6600, followed by the 50-day Exponential Moving Average (EMA) at 0.6588.
The AUD/USD pair’s movements continue to be influenced by a combination of domestic and global economic factors, with traders closely monitoring developments for trading opportunities.
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