The Australian Dollar (AUD) extends its winning streak, commencing on February 14, propelled by upbeat preliminary Australian Purchasing Managers Index (PMI) data. The positive momentum suggests a rebound in private sector activity, marking the end of a five-month downturn, particularly driven by robust expansion in the services sector. However, challenges loom as the manufacturing sector faces difficulties due to increased interest rates, resulting in the most significant decline in output since May 2020.
Despite the encouraging PMI data, the AUD could encounter hurdles from softer Aussie money markets, reflected in the S&P/ASX 200 Index’s third consecutive decline amid subdued sentiment. The recent cautious tone expressed in the Federal Open Market Committee (FOMC) Minutes regarding interest rate cuts may delay the onset of an easing cycle. The Reserve Bank of Australia‘s (RBA) meeting minutes also contributed to the market sentiment shift, reducing expectations for imminent rate cuts.
The US Dollar Index (DXY) faces downward pressure despite rising US Treasury yields, following the FOMC Minutes’ cautious stance on the pace of interest rate reductions. The minutes emphasized the need for further evidence of disinflation to address concerns about upside risks. Market expectations indicate a 70% anticipation of a rate cut by the Fed‘s June meeting, with a 52.2% probability assigned for easing to begin in June, according to the CME FedWatch Tool.
Key market movements include the Judo Bank Australia Composite PMI indicating the first month of expansion in the Australian private sector. The services PMI rose, but manufacturing PMI fell due to a significant drop in new orders. Additionally, the Australian Wage Price Index grew by 0.9% in Q4, and the Westpac Leading Index declined by 0.1% in January.
Technical analysis indicates the AUD/USD pair maintaining its position above the major support of 0.6550. A break below this level could lead to a retest of the weekly low at 0.6521, followed by the psychological support at 0.6500. On the upside, resistance areas include the 50-day Exponential Moving Average (EMA) at 0.6574 and the three-week high at 0.6579, with potential further gains toward the psychological level of 0.6600 and the 38.2% Fibonacci retracement level of 0.6606 if breached.
