AUD unable to hold onto gains as USD buoyed by service sector outperformance

AUD - Australian Dollar

The Australian dollar enjoyed mixed fortunes through trade on Wednesday enjoying a consolidated push above 0.74 through the domestic session before correcting lower overnight following stronger than anticipated US services data and hawkish commentary from key Fed officials. With little of note on the domestic docket, the AUD extended Tuesday’s post-RBA upturn touching intraday highs at 0.7425, finding added support following softer than expected ADP employment data. The ADP employment report often provides a key insight into US labour market conditions ahead of the more comprehensive non-farm payroll print, and the surprise downturn put investors on notice, forcing a correction in US ten-year treasury notes and putting the USD under pressure. The AUD was unable to hold onto gains and fell steeply following a better than anticipated US services report. The ISM services PMI rose to a record high, highlighting supply constraints and labour shortages as key factors impacting input costs and signalling that transitory inflationary pressures are unlikely to ease in the near term. Having fallen back through 0.74 the AUD touched intraday lows at 0.7370 and opens only marginally higher this morning at 0.7377 US cents.

Key Movers

The US dollar advanced against most counterparts on Wednesday, buoyed by a record high ISM services PMI report. Having come under pressure following weaker than expected leading employment data the USD rebounded strongly as the measure of service sector performance printed well beyond expectations. A 7-point gain in business activity and an uptick across demand for new orders and employment helped fuel expectations the US economic recovery remains on track despite the challenges presented by the COVID-19 Delta variant. A deep dive into the monthly print showed shortages in the supply of input goods, labour and extended delivery times which continue to add to the rising costs of service suggesting transitory inflationary pressures will not abate in the near term. The stronger than anticipated print coupled with hawkish commentary from Fed policymaker Richard Clarida helped fuel USD gains through the latter half of the overnight session, propping up the dollar index and driving a 0.2% gain on the day.

Both the euro and pound gave up ground on the day slipping below 1.1850 and 1.39 respectively. Our attentions turn now to tonight’s Bank of England policy meeting. We will be keenly attuned to any significant change in economic forecasting, but anticipate policymakers will refrain from adjusting the current policy setting. All in all the market will likely continue to bounce within the week's well-defined ranges ahead of Friday’s non-farm payroll print.

Expected Ranges

AUD/USD: 0.7320 - 0.7430 ▼

AUD/EUR: 0.5270 - 0.5350 ▼

GBP/AUD: 1.8680 - 1.8930 ▲

AUD/NZD: 1.0430 - 1.0580 ▲

AUD/CAD: 0.9210 - 0.9320 ▼