Aussie dollar strengthens despite improved risk sentiment amid strong PMI numbers

• The Aussie could appreciate as the RBA minutes point to a driver mood on the rate path.
• Australia’s Judo Bank composite PMI rose to 51.4 in August, fueled by stronger growth in the services sector.
• The latest FOMC minutes indicate that most Fed officials agreed to a rate cut in September.

The Australian dollar (AUD) moved sideways against the US dollar (USD) on Thursday, driven by strong data on business activity that lifted market sentiment. Further support for the AUD/USD pair came from the Reserve Bank of Australia’s (RBA) August meeting minutes, which suggested that the cash rate could remain unchanged for an extended period.

Judo Bank Australia’s Composite Purchasing Managers’ Index (PMI) rose to 51.4 in August from 49.9 in July. The increase marks the fastest expansion in three months, driven by a stronger performance in the services sector despite a sharper decline in manufacturing output.

The US dollar (USD) is rising on a slight rebound in Treasury yields on Thursday. However, the greenback faced challenges as the FOMC Minutes for the July policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the next meeting in September as long as inflation continue to cool. In addition, traders await Fed Chairman Jerome Powell’s upcoming speech in Jackson Hole on Friday.

Daily Digest Market Movers: Australian dollar strengthens after PMI data

• CME’s FedWatch tool suggests markets are now pricing in a nearly 65.5% odds on a 25 basis point (bps) Fed rate cut at its September meeting, down from 71.0% a day ago . The probability of a 50 basis point rate cut rose to 34.5% from 29.0% a day earlier.
• Judo Bank Australia PMI for services rose to 52.2 in August from 50.4 in July, marking the fastest expansion in services output in three months, according to preliminary data. Meanwhile, the manufacturing PMI rose slightly to 48.7 from 47.5, signaling a continued but slower decline in the health of the sector for the seventh straight month.
• Federal Reserve (Fed) Governor Michelle Bowman on Tuesday expressed caution about making any policy changes, citing rising inflation risks. Bowman warned that overreacting to individual data points could undermine progress already made, according to Reuters.
• On Tuesday, RBA minutes suggested that board members had considered a rate hike earlier this month, before ultimately deciding that keeping rates current would better balance risks. Furthermore, RBA members agreed that a rate cut was unlikely anytime soon.
• China is exploring a new approach to shore up its struggling housing market by allowing local governments to use special bonds to buy unsold properties. Local governments have already used more than half of this year’s CNY 3.9 trillion ($546 billion) bond allocation, and it is unclear how much of the remaining funds could be redirected to housing purchases if the plan is implemented, according to Bloomberg.
• Minneapolis Fed President Neel Kashkari said on Monday it would be appropriate to discuss potential US interest rate cuts in September because of concerns about a weakening labor market, according to Reuters.
• RBA Governor Michele Bullock has expressed that the Australian central bank will not hesitate to raise interest rates again to combat inflation if necessary. The comments came just days after the RBA decided to keep rates steady at 4.35% for the sixth consecutive meeting in August.

Technical Analysis: The Australian Dollar is consolidating around 0.6750

The Australian dollar is trading around 0.6740 on Thursday. Daily chart analysis shows that the AUD/USD pair is consolidating in an ascending channel, suggesting an uptrend. Additionally, the 14-day Relative Strength Index (RSI) remains slightly below the 70 mark, supporting ongoing bullish momentum. Subsequent upward movement could indicate that the currency pair is overbought, which may lead to a correction.

On the other hand, the AUD/USD pair could test a seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper limit of the ascending channel at the 0.6860 level.

For support, the pair may find support around the lower limit of the ascending channel at the 0.6700 level, followed by the nine-day EMA at the 0.6683 level. A drop below the nine-day EMA could see the pair test the retracement level at 0.6575, followed by the next retracement level at 0.6470.

AUD/USD: Daily chart