Australian Dollar dips, services PMI beats estimate

The Australian dollar has snapped a three-day rally on Thursday.  In the European session, AUD/USD is trading at 0.6266, down 0.27% on the day.  After sliding to a 5-year low on Monday, the Aussie has recovered and gain 0.9% this week.

Australia’s PMI stronger than expected

It’s been a good week for Australian PMIs.  On Monday, Manufacturing PMI climbed back into positive territory in January and rose to a revised 50.2, up from a preliminary estimate of 49.8 and above the December reading of 47.8.  This marked the first expansion in a year, as the manufacturing sector has been hit hard by the weak global economy and the slowdown in China, Austaralia’s number one trading partner.

This was followed by an acceleration in Services PMI on Wednesday, with a reading of 51.2 in January, up from the preliminary reading of 50.4 and above the December read of 50.8.  The services sector has shown sustained growth for twelve straight months.  This was the strongest expansion since August with an increase in customer demand and new orders.

Earlier in the week, Australia’s retail sales declined for the first time in nine months.  Although the drop was a modest 0.1%, much better than the market estimate of -0.7%, it is raising concerns about the strength of the economy and has fueled expectations that the Reserve Bank of Australia will cut rates at the Feb. 18 meeting.  The money markets are currently pricing a quarter-point cut at 80%.

The central bank has been an outlier amongst major central banks as it has not joined the easing cycle and a rate cut would be hugely significant.  The RBA has held the cash rate at 4.35% since Nov. 2023 and with underlying inflation falling and a weak economy, conditions seem ripe for a rate cut.

AUD/USD technical

• AUD/USD is testing support at 0.6274. Below, there is support at 0.6251.

• There is resistance at 0.6308 and 0.6331.