Australian Dollar steadies as US Dollar struggles ahead of ISM Manufacturing PMI
- The Australian Dollar lost ground as Manufacturing PMI dropped for the fifth consecutive month to 47.2 in June.
- The AUD may limit its downside due to the higher-than-expected Manufacturing PMI from trade partner China.
- US ISM Manufacturing PMI is forecasted to increase to 49.0 in June, from the previous reading of 48.7.
The Australian Dollar (AUD) struggles as investors’ sentiment soured following data indicating that Australia's June manufacturing PMI contracted at its fastest rate since May 2020. Market focus now turns to the Reserve Bank of Australia's (RBA) upcoming policy meeting minutes on Tuesday for insights into the monetary policy direction.
The AUD may limit its downside as the Caixin Manufacturing PMI from China increased to 51.8 in June, defying the expectations of a decline to 51.2 from May’s 51.7. Any change in the Chinese economy could impact the Australian market as both nations are close trade partners.
The US Dollar (USD) depreciates due to the heightened expectations of the US Federal Reserve’s (Fed) deducting interest rates in 2024. The CME FedWatch Tool indicates that the likelihood of a Fed rate cut in December by 25 basis points has increased to nearly 32.0%, up from 28.7% a week earlier.
Daily Digest Market Movers: Australian Dollar holds ground after stronger China’s PMI
- The Judo Bank Australia Manufacturing PMI dropped for the fifth consecutive month to 47.2 in June from 49.7 in May. This decline is the fastest deterioration since May 2020.
- Australia’s 10-year government bond yield surged above 4.4%, as a hot inflation reading fueled fears that the Reserve Bank of Australia might raise interest rates again in the next meeting in August.
- Chinese President Xi Jinping, as reported by Chinese state media on Monday, emphasized that fostering a healthy and stable development of China-Australia relations serves the fundamental and long-term interests of both countries and their peoples. Xi expressed readiness to collaborate with Australia in advancing toward a more mature, stable, and productive comprehensive strategic partnership between the two nations.
- NBS China’s Manufacturing PMI remained at 49.5 in June, consistent with market forecasts and marking the second consecutive month at this level. This result indicates the fourth instance of contraction. Meanwhile, the Non-Manufacturing PMI fell to 50.5 from the previous reading of 51.1, below market expectations of 51.0. Despite marking the 18th consecutive month of expansion in the service sector, this is the slowest growth rate since last December.
- On Friday, the US Bureau of Economic Analysis reported that US inflation eased to its lowest annual rate in over three years. The US Personal Consumption Expenditures (PCE) Price Index increased by 2.6% year-over-year in May, down from 2.7% in April, meeting market expectations. Core PCE inflation also rose by 2.6% year-over-year in May, down from 2.8% in April, aligning with estimates.
- The Reserve Bank of Australia’s (RBA) Deputy Governor Andrew Hauser. Hauser said it would be a “bad mistake” to formulate policy in response to a single inflation report. He emphasized that there is still a suite of economic data to come that will require detailed analysis, per Bloomberg.
- Last week, the Australian Bureau of Statistics showed that the monthly Consumer Price Index (CPI) increased by 4.0% in the year to May 2024, up from 3.6% in April and exceeding market forecasts of 3.8%. This marks the highest level since November 2023.
Technical Analysis: Australian Dollar edges lower toward 0.6650
The Australian Dollar trades around 0.6670 on Monday. The daily chart analysis indicates a neutral bias for the AUD/USD pair as it consolidates within a rectangle formation. The 14-day Relative Strength Index (RSI) is positioned slightly above the 50 level, suggesting a potential for bullish bias.
The AUD/USD pair may encounter resistance near the upper boundary of the rectangle formation around 0.6690, followed by the psychological level of 0.6700. Additional resistance is seen at 0.6714, the highest level since January.
On the downside, the AUD/USD pair finds support around the 50-day Exponential Moving Average (EMA) at 0.6621. A break below this level could lead the pair to test the lower boundary of the rectangle formation near 0.6585.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.52% | -0.31% | 0.13% | -0.03% | -0.01% | -0.10% | 0.05% | |
| EUR | 0.52% | -0.02% | 0.35% | 0.19% | 0.39% | 0.11% | 0.26% | |
| GBP | 0.31% | 0.02% | 0.35% | 0.21% | 0.41% | 0.14% | 0.30% | |
| JPY | -0.13% | -0.35% | -0.35% | -0.13% | -0.07% | -0.22% | -0.03% | |
| CAD | 0.03% | -0.19% | -0.21% | 0.13% | 0.05% | -0.07% | 0.10% | |
| AUD | 0.01% | -0.39% | -0.41% | 0.07% | -0.05% | -0.27% | -0.03% | |
| NZD | 0.10% | -0.11% | -0.14% | 0.22% | 0.07% | 0.27% | 0.19% | |
| CHF | -0.05% | -0.26% | -0.30% | 0.03% | -0.10% | 0.03% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
