Australian Dollar remains on the front foot vs weaker USD after China Services PMI

AUD/USD attracts buyers for the second straight day as receding Fed hike bets undermine the USD.
Spot prices move little following the release of rather unimpressive China’s RatingDog Services PMI.
Geopolitical risks hold back the USD bears from placing aggressive bets, capping gains for the major.

Haresh Menghani FXStreet

The AUD/USD pair turns positive for the second straight day following a modest Asian session downtick to the 0.6910 region amid the emergence of fresh US Dollar (USD) selling. Spot prices stick to gains following the release of the RatingDog China Services PMI and currently trade around the 0.6930 area, just below a one-and-a-half-week top set on Wednesday.

The gauge eased from a three month high of 54.4 to 54.1 in June. The reading, however, pointed to a continuous expansion in China’s services sector and offers some support to the China-proxy Australian Dollar (AUD). The USD, on the other hand, languishes near a two-week low, touched on Thursday, amid receding US Federal Reserve (Fed) rate hike bets. This turns out to be another factor that contributes to the bid tone surrounding the AUD/USD pair.

The closely-watched US Nonfarm Payrolls (NFP), released on Wednesday, showed that the economy added 57K jobs in June, far below the 110K expected. Moreover, the previous month's reading was revised down from 172K to 129K, pointing to softening labor conditions and offsetting a downtick in the Unemployment Rate to 4.2% in June. Nevertheless, the data shifted market expectations from one to two Fed rate increases in 2026 to between zero and one hike.

However, persistent geopolitical uncertainties hold back the USD bears from placing aggressive bets and cap the upside for the AUD/USD pair. In fact, the New York Times reported that US officials feared Israel may be hatching a plan to kill Iran’s senior negotiators, which could derail negotiations and trigger renewed fighting. Furthermore, Iran’s military headquarters warned that any US interference in the Strait of Hormuz will be met with a “decisive and swift response.”

Adding to this, relatively thin liquidity on the back of a holiday in the US makes it prudent to wait for strong follow-through buying before positioning for an extension of the AUD/USD pair's recovery from a three-month low, set earlier this week. Nevertheless, spot prices seem poised to register modest gains for the first time in three weeks and remain at the mercy of USD price dynamics.

Economic Indicator

RatingDog Services PMI

The RatingDog Services Purchasing Managers Index (PMI), released on a monthly basis by Caixin Insight Group and S&P Global, is a leading indicator gauging business activity in China’s services sector. The data is derived from surveys of senior executives at both private-sector and state-owned companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for CNY.

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