AUD/USD remains quiet around 0.6740 despite upbeat Caixin Services PMI

The AUD/USD pair has remained lackluster despite the IHS Markit reported hotter-than-anticipated Caixin Manufacturing data. The economic data has landed at 55.0, higher than the consensus of 50.5 and the former release of 52.9.

After the rollback of restrictions on the movement of men, materials, and machines, the Chinese economy is marching effectively on the path of economic recovery. The administration and the People’s Bank of China (PBoC) are dedicated to spurring domestic demand by deploying more stimulus and reform measures.

It is worth noting that Australia is the leading trading partner of China and higher service PMI in China will strengthen the Australian Dollar ahead.

Meanwhile, a recent drop in the Australian monthly Consumer Price Index (CPI) has failed to scale down hawkish expectations from the Reserve Bank of Australia (RBA). The monthly CPI (Jan) dropped significantly to 7.4% from the expectations of 8.0% and the prior release of 8.4%. None of the RBA policymakers has informed that Australian inflation has peaked now. Also, there is an extreme deviation between the current inflation and the desired one. Therefore, the RBA would maintain a hawkish stance for a longer period.

A survey from Reuters on RBA’s interest rate guidance dictates that the central bank will hike its interest rate again by 25 basis points (bps) to 3.60% on Tuesday, followed by one more lift next quarter, before pausing until next year, taking the peak rate higher than previously thought.

Meanwhile, the US Dollar Index (DXY) is eyeing a cushion around 104.80 after a steep correction. The USD Index is expected to remain sideways as investors await US ISM Services PMI data for fresh impetus. S&P500 futures have extended loss in the Asian session after a positive Thursday, indicating the investors’ risk appetite is fading away.