The Australian Dollar (AUD) edged lower against the US Dollar (USD) following the release of Judo Bank’s February Purchasing Managers Index (PMI) on Friday. Despite the slight dip, the AUD/USD pair saw a brief recovery after US President Donald Trump indicated potential progress in trade negotiations with China, easing market concerns over tariffs. Traders are now awaiting the preliminary February reading of the US S&P Global PMI later on Friday for further direction.
Australia’s Judo Bank Manufacturing PMI rose to 50.6 in February, up from 50.2 in January, while the Services PMI also saw a slight improvement, rising to 51.4 from 51.2. The Composite PMI edged up to 51.2 from 51.1, signaling moderate growth across sectors.
Reserve Bank of Australia (RBA) Governor Michele Bullock expressed caution about easing monetary policy too quickly or excessively, warning that such moves could stall disinflation efforts, keeping inflation above the target midpoint. She reaffirmed the RBA’s commitment to data-driven decisions, emphasizing a careful risk assessment approach. While rate cuts remain a possibility, Bullock suggested a measured strategy is essential.
Weak US Jobless Claims and Fed Divergence Support AUD
The US Dollar Index (DXY), which tracks the USD against six major currencies, held steady near 106.50 during the session. However, the DXY faced headwinds following weak US jobless claims data and mixed commentary from the Federal Reserve (Fed). US Initial Jobless Claims for the week ending February 14 increased to 219,000, exceeding the expected 215,000. Continuing Jobless Claims also rose to 1.869 million, slightly below the forecast of 1.87 million.
Fed Board Governor Adriana Kugler acknowledged on Thursday that US inflation still has “some way to go” before reaching the central bank’s 2% target, signaling uncertainty in the path forward. Meanwhile, St. Louis Fed President Alberto Musalem warned of potential stagflation risks and rising inflation expectations, while Atlanta Fed President Raphael Bostic remained open to the possibility of two rate cuts this year, depending on economic developments.
Trump’s trade rhetoric also influenced the USD, with the US President suggesting that a new trade deal with China is possible and that Chinese President Xi Jinping could visit. He also mentioned ongoing discussions over TikTok and the potential imposition of a 25% tariff on lumber and forest products.
Australia’s Labor Market and RBA Outlook
The Australian Bureau of Statistics (ABS) reported a slight uptick in Australia’s seasonally adjusted Unemployment Rate, rising to 4.1% in January from 4.0% in December. Meanwhile, Employment Change came in at 44K for January, down from 60K in December but still surpassing expectations of 20K. RBA Deputy Governor Andrew Hauser stated that the central bank’s policy remains “restrictive,” noting that the latest labor market data showed no significant cause for concern.
Earlier this week, the RBA lowered its Official Cash Rate (OCR) by 25 basis points to 4.10%, marking the first rate cut in four years. Governor Bullock acknowledged the impact of high interest rates but cautioned that it was too soon to declare victory over inflation, underlining the resilience of the labor market.
Technical Analysis: AUD/USD Tests 0.6400 Resistance
The AUD/USD pair hovers around the key psychological level of 0.6400 on Friday, trading within an ascending channel, which suggests a bullish sentiment in the market. The 14-day Relative Strength Index (RSI) remains above 50, supporting the positive outlook.
On the upside, the pair faces immediate resistance at 0.6400, followed by the upper boundary of the ascending channel around 0.6420. Should the pair break above these levels, it could pave the way for further gains.
On the downside, initial support is seen at the nine-day Exponential Moving Average (EMA) around 0.6350, followed by the 14-day EMA at 0.6330. A more significant support zone lies near the lower boundary of the channel at 0.6320, which could act as a critical point for the pair’s next move.
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