The Australian Dollar (AUD) saw a reprieve on Thursday, breaking its three-day losing streak, likely fueled by an uptick in risk appetite. However, the currency faced downward pressure following the release of Consumer Inflation Expectation data by the Melbourne Institute. Consumer expectations for future inflation over the next 12 months dipped to 4.1% in May from April’s 4.6%, marking the lowest level since October 2021.
Private sector activity in Australia continued its expansionary trend for the fourth consecutive month in May. The preliminary Judo Bank Composite Purchasing Managers Index (PMI) dipped slightly to 52.6 in May from April’s 53.0, indicating a modest moderation in growth. While the services sector witnessed expansion, the decline in manufacturing output showed signs of easing.
In the broader market, the US Dollar (USD) remained subdued ahead of the release of PMI data from the United States (US). However, the Greenback strengthened following the release of the Federal Open Market Committee (FOMC) Meeting Minutes, which hinted at a hawkish sentiment within the Federal Reserve (Fed). Concerns were raised about the persistent inflationary pressures, leading to a cautious approach towards interest rate adjustments.
Key Market Movements
Tensions escalated following Lai Ching-te’s assumption of office as Taiwan’s new president, with reports of increased Chinese military activity in the region. Any geopolitical tension in the area could impact the Australian market due to close trade ties between China and Australia.
The Judo Bank Australia Services PMI for May stood at 53.1, down from April’s 53.6, signaling continued expansion albeit at a slower pace. However, the Manufacturing PMI remained unchanged at 49.6, indicating ongoing contraction in the sector.
The ASX 200 Index dipped below 7,800 on Thursday, driven by declines in mining and energy stocks amidst a significant drop in commodity prices. Weakness in Wall Street performance overnight, following concerns raised in the FOMC meeting minutes, also influenced Australian shares.
Policy and Technical Analysis
Federal Reserve Bank of Boston President Susan Collins emphasized patience as the right policy for the Fed, while Fed Governor Christopher Waller stated a need for favorable inflation data before supporting policy easing.
Minutes from the RBA meeting in May highlighted considerations for rate adjustments, with policymakers opting for a steady policy stance amidst uncertainties.
Technical analysis suggests the AUD/USD pair remains below the key level of 0.6650, indicating a weakening bullish bias. A breach below the rising wedge’s lower boundary may confirm a bearish bias, with psychological support at 0.6600 and potential downside towards the throwback support region at 0.6470. Conversely, a breakout above 0.6650 could reinforce bullish sentiment.
