The Australian Dollar showed strength against the US Dollar after positive Producer Price Index (PPI) data was released. The PPI in Australia rose by 4.8% Year-on-Year in the second quarter, surpassing the previous quarter’s reading of 4.3%. This increase led to the appreciation of the Australian Dollar.
However, the US Dollar also received support due to increased risk aversion amid concerns about the US economy. Recent data on manufacturing and employment in the US raised worries about an economic downturn, which boosted risk aversion and supported the US Dollar.
The Australian Dollar faces challenges as second-quarter inflation data has lowered expectations for another rate hike by the Reserve Bank of Australia (RBA) at its upcoming policy meeting. There is now a 50% estimated chance of an RBA rate cut in November, much earlier than previously anticipated in April next year. These factors are contributing to the downward pressure on the Australian Dollar.
The US ISM Manufacturing Purchasing Managers Index (PMI) dropped to an eight-month low of 46.8 in July, missing the expected reading of 48.8. Additionally, US Initial Jobless Claims for the week ended July 26 rose to 249K, higher than the forecasted 236K. These figures, along with other economic concerns, have led to increased risk aversion in the markets.
China’s Caixin Manufacturing Purchasing Managers Index (PMI) also fell short of expectations in July, which can significantly impact the Australian market as China is a close trade partner with Australia. The Australian Bureau of Statistics reported a trade surplus of 5,589 million for June, surpassing the anticipated 5,000 million.
Federal Reserve Chair Jerome Powell mentioned that a rate cut in September is being considered, and the central bank will closely monitor the labor market for signs of a potential downturn. The ABS reported that the Monthly CPI rose by 3.8% in the year to June, slightly lower than the 4% in May.
On a technical analysis note, the Australian Dollar is trading around 0.6510 on Friday. The AUD/USD pair is consolidating within a descending channel on the daily chart, indicating a bearish bias. The 14-day Relative Strength Index (RSI) suggests a potential upward correction in the near future.
Looking at the broader picture, the Australian Dollar’s value is influenced by various factors such as interest rates set by the RBA, the price of Iron Ore (Australia’s largest export), the health of the Chinese economy, inflation, growth rate, Trade Balance, and market sentiment. These elements play a crucial role in determining the value of the Australian Dollar in the foreign exchange market.