Australian Dollar faces pressure after US PMI
- Aussie stalls near 0.6400 despite earlier gains.
- Post-PMI sentiment dims risk appetite and benefits the USD.
- RBA’s measured stance limits deeper easing bets and might limit the downside.
The AUD/USD pair faces offers pressure near 0.6400 after the release of the United States (US) S&P Global PMI data for February. Although traders deem President Donald Trump’s tariff agenda less disruptive than initially feared, the Reserve Bank of Australia’s (RBA) cautious interest rate cut stance also curbs the Aussie’s attempt to extend its recent upswing.
Daily digest market movers: Aussie deflates as US PMI disappoints
- The US Manufacturing PMI came in at 51.6, surpassing the 51.5 consensus, yet the Services PMI contracted to 49.7, a significant miss versus 53.0 estimates—undermining broader economic optimism.
- The University of Michigan’s Consumer Sentiment Index dropped below expectations and the five-year Consumer Inflation Expectation index rose above forecasts, reflecting persistent price concerns.
- The US Dollar Index (DXY) hovered around 106.60, initially boosted by decent manufacturing data but later tempered by disappointing Services figures.
- Tariff jitters persist despite signs that Trump’s proposed measures may be less severe, as allies continue negotiations. The market remains wary of potential escalations against key trading partners, including China.
- The Australian Dollar (AUD) weakened modestly, although RBA Governor Michele Bullock’s hawkish rhetoric, highlighting the risk of pausing rate cuts, may offer some support.
- The RBA’s earlier 25 basis points reduction to 4.10% was framed as a cautious move amid signs of cooling inflation. Analysts anticipate only one more 25 basis points cut in 2025 unless Consumer Price Index (CPI) trends shift notably.
AUD/USD technical outlook: Bulls fail to extend rally, pair hovers below key resistance
The AUD/USD pair retreated after testing the 0.6400 mark, surrendering a portion of earlier gains in light of the US PMI results. The Relative Strength Index (RSI) remains in a higher positive zone but is now declining, suggesting a softening bullish pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints flatter green bars, pointing to a slowdown in momentum.
Although the pair remains above its 20-day Simple Moving Average, the failure to break the 100-day Simple Moving Average underscores a possible consolidation phase, leaving traders poised for further tariff or Fed policy developments to set the next directional cue.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.