AUD/USD Struggles for Direction as Chinese PMI Data Fails to Ease Economic Concerns

The AUD/USD pair faces challenges in capitalizing on its recent rebound from levels below 0.6600, maintaining a narrow trading range throughout the Asian session on Monday.

Written by: Arslan Butt • Monday, July 3, 2023 • 1 min read

• Last updated: Monday, July 3, 2023

The AUD/USD pair faces challenges in capitalizing on its recent rebound from levels below 0.6600, maintaining a narrow trading range throughout the Asian session on Monday. Currently trading around the mid-0.6600s, the pair shows minimal movement in response to China’s official PMI data.

The release of the US PCE Price Index on Friday, which presented a mixed picture, raised doubts about the Federal Reserve’s potential for more aggressive policy tightening. This boosted investor sentiment and benefited the Australian dollar as a risk-sensitive currency. Additionally, subdued demand for the US dollar contributes to the tailwind for the AUD/USD pair, which receives further support from slightly better-than-expected Chinese macro data.

Although China’s Manufacturing PMI for June came in at 50.5, surpassing the expected 50.2%, it remains below May’s reading of 50.9%, providing limited relief from concerns about the slowdown in the world’s second-largest economy. Furthermore, expectations of additional rate hikes by the Federal Reserve strengthen the US dollar and restrict the AUD/USD pair’s upside potential.

Market pricing currently suggests an approximately 85% probability of a 25 bps interest rate increase at the next FOMC policy meeting in July. Moreover, Federal Reserve Chair Jerome Powell emphasized last week that borrowing costs may need to rise up to 50 bps by the end of this year. This supports higher US Treasury bond yields, potentially prompting some USD dip-buying and capping gains for the AUD/USD pair.

Market participants eagerly await the release of the US ISM Manufacturing PMI during the early North American session, marking the beginning of this week’s important US macroeconomic data. The focus will remain on the release of the FOMC meeting minutes on Wednesday and the highly anticipated US Non-Farm Payrolls (NFP) report on Friday.

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ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.