Australian Dollar Holds Steady as US Dollar Softens Ahead of PMI Data

The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Thursday, supported by the release of domestic Purchasing Managers Index (PMI) data. The AUD/USD pair moved higher as the USD experienced a slight dip, driven by a modest pullback in US Treasury yields, with the 2-year and 10-year yields standing at 4.07% and 4.23%, respectively, at the time of writing.

The Australian Dollar’s performance is further bolstered by hawkish sentiment surrounding the Reserve Bank of Australia (RBA), underpinned by strong employment figures. Earlier in the week, RBA Deputy Governor Andrew Hauser highlighted the high labor participation rate, emphasizing that the central bank remains data-driven but not overly fixated on any single data point.

The USD, meanwhile, came under pressure following the release of the Federal Reserve’s (Fed) Beige Book on Wednesday. The report noted that economic activity across the US was “little changed in nearly all Districts,” contrasting with August’s report, which had indicated growth in three Districts and stable activity in nine.

Market participants are now closely watching the release of the S&P Global Purchasing Managers Index (PMI), a key indicator of US private sector activity in both the manufacturing and services sectors, which is scheduled for Thursday.

Market Movers: Australian Dollar Gains on RBA Hawkish Sentiment

According to the CME FedWatch Tool, there is an 88.9% chance of a 25-basis-point rate cut from the Federal Reserve, with no expectation of a larger 50-basis-point reduction.

Australia’s Judo Bank Composite PMI slightly rose to 49.8 in October from 49.6 in September, marking the second consecutive month of contraction in private sector output. The Services PMI edged up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI slipped to 46.6 from 46.7, continuing its decline.

In a social media post, Federal Reserve Bank of San Francisco President Mary Daly noted that the US economy is in a better position, with inflation significantly lower and the labor market stabilizing. Meanwhile, Minneapolis Fed President Neel Kashkari indicated that the Fed is monitoring the labor market for signs of instability and suggested that any rate cuts will likely be gradual rather than aggressive.

China’s central bank, the People’s Bank of China (PBoC), lowered its 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and its 5-year LPR to 3.60% from 3.85%, as expected. These cuts aim to stimulate domestic economic activity in China, which could, in turn, boost demand for Australian exports.

National Australia Bank recently revised its projection for the RBA, now expecting the first rate cut in February 2025, earlier than the previously anticipated May timeline. The bank foresees gradual cuts, with rates expected to reach 3.10% by early 2026.

Technical Analysis: Australian Dollar Remains Below 0.6650

The AUD/USD pair is trading around 0.6640 on Thursday, maintaining a bearish outlook in the short term. The pair remains below the nine-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) is below 50, reinforcing the negative sentiment.

On the downside, the AUD/USD pair may retest its two-month low of 0.6614, last seen on Wednesday. The next key support lies at the psychological level of 0.6600.

On the upside, resistance is expected at the nine-day EMA at 0.6680, followed by the 50-day EMA at 0.6728. A break above these levels could pave the way for a potential move toward the psychological resistance at 0.6800.