The Australian Dollar stayed lower against the US Dollar in Asian trading on Friday, with AUD/USD near 0.7040 after reversing prior gains.
It followed S&P Global’s preliminary February PMI figures, which showed slower overall activity while price pressures remained firm.
Australian Growth Signals Cooling
Australia’s Composite PMI fell to 52.0 in February from 55.7 in January, extending expansion to a seventeenth month. Services PMI eased to 52.2 from 56.3, and Manufacturing PMI dipped to 51.5 from 52.3.
The US Dollar also found support after US initial jobless claims fell to 206K for the week ending 14 February. This was down from a revised 229K and below the 225K forecast, with markets watching preliminary US Q4 GDP and PCE data due Friday.
Minutes from the Federal Open Market Committee’s January meeting pointed to possible rate increases if inflation stays persistent. Most officials backed keeping rates steady, with only a few supporting a cut, and plans to consider easing if inflation slows as expected.
The Reserve Bank of Australia targets inflation of 2–3% through interest rate settings and can also use quantitative easing or tightening. Iron ore is Australia’s largest export, worth $118 billion a year in 2021, and China is the main destination.
Market Implications For Aud Usd
We are seeing the Australian Dollar weaken due to signs of a broad cooling in economic activity. The recent slip in the composite PMI to 52.0, down from 55.7, signals that growth is slowing down, even while inflationary pressures remain. This slowdown reduces the likelihood of the Reserve Bank of Australia (RBA) raising interest rates, putting downward pressure on the currency.
The RBA’s position is complicated by inflation that remains above its target range, which we saw end 2025 at an annual rate of 4.1%. While they have held the cash rate steady at 4.35%, the slowing growth makes further hikes difficult, limiting support for the AUD. Derivative traders might consider this a cap on the Aussie dollar’s potential upside in the near term.
A key factor weighing on the currency is the performance of our largest trading partner, China. Their manufacturing sector is showing signs of weakness, with the official PMI struggling to stay above the 50-point mark that indicates expansion. This directly impacts demand for Australian exports.
We can see this reflected in the price of iron ore, Australia’s biggest export. After trading above $140 per tonne late last year, prices have fallen to around $120, a drop of over 14%, reflecting concerns about Chinese demand. This fall in commodity prices is a direct headwind for the AUD.
In contrast, the US Dollar is strengthening, making the AUD/USD pair’s decline more pronounced. Strong US labor data, with jobless claims falling to 206K, and persistent US inflation are fueling speculation the Federal Reserve will keep interest rates higher for longer. This divergence in central bank outlooks favors the US Dollar.
Given these converging factors, traders should position for potential further weakness in the AUD/USD pair over the coming weeks. Strategies could include buying put options to profit from a fall below key support levels or selling AUD/USD futures contracts. These positions align with the current trend of a slowing Australian economy and a comparatively strong US economic outlook.
