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The Australian Dollar (AUD) holds slightly higher against the US Dollar (USD) after reducing earlier gains. This comes after the release of Australia’s preliminary S&P Global Purchasing Managers Index data.
In May, Australia’s Manufacturing PMI remained at 51.7, Services PMI dropped to 50.5 from 51.0, and Composite PMI fell to 50.6 from 51.0. The Reserve Bank of Australia cut the Official Cash Rate by 25 basis points, aiming to manage inflation, and suggested readiness for further moves if necessary.
US Dollar Index Performance
The US Dollar Index is declining for the fourth consecutive session, trading around 99.50. Anticipation surrounds S&P Global US PMI data, with an expected stable business activity expansion in May.
US legislative and economic developments are ongoing. President Trump’s tax-cut bill awaits a House vote, amid economic concern voiced by Cleveland and San Francisco Fed Presidents. Atlanta Fed President warned of trade logistics disruptions. Moody’s downgraded the US credit rating, projecting federal debt to rise by 2035.
US economic indicators show easing inflation, with CPI and PPI indicating reduced price pressures, fueling expectations for 2025 rate cuts. Weak Retail Sales figures have increased concerns of prolonged economic sluggishness.
China criticised US measures on advanced chips, calling them protectionist. The PBoC reduced Loan Prime Rates, providing market support. Meanwhile, Australian politics experienced upheaval as the ruling Labor Party regained power after coalition disbandment.
Australian Dollar Against Other Currencies
The AUD/USD pair trades around 0.6440, supported by technical indicators above key moving averages. Resistance is noted at 0.6515 and 0.6687, with support at 0.6427 and 0.6367. A further decline could challenge the March 2020 low of 0.5914.
Against other currencies, the AUD was strongest relative to the New Zealand Dollar, showing mixed performance versus USD, EUR, and CAD. The S&P Global Composite PMI data, derived from surveys to executives, serves as an indicator of US private-business activity. Traders await upcoming data for market trend implications.
Today’s market action shows that the Australian Dollar is holding onto just a fraction of earlier gains against the US Dollar, following the release of Australian PMI figures. While the Manufacturing sector remained flat, Services and Composite numbers edged down slightly. These changes, although modest, suggest the domestic economy is losing a touch of momentum. That could be worrisome in the weeks ahead, especially for those managing exposure to growth-sensitive assets.
The Reserve Bank’s decision to lower the Official Cash Rate by 25 basis points marks a shift, highlighting their concern over persistent price pressures. Their messaging signalled that further reductions could be considered if inflation remains sticky. For us, this introduces the prospect of further rate tailwinds for risk assets, but it also raises the risk of deeper economic softness if demand slows too sharply.
Meanwhile, the US Dollar appears under pressure, now slipping for a fourth straight session. This is not occurring in isolation. The Dollar Index has dropped toward 99.50, reflecting receding investor appetite for safe-haven flows in light of softening inflation data. We’ve seen the Consumer and Producer Price Index figures coming in lower, pointing towards cooling cost pressures. A softer inflation pulse supports the growing belief that the Federal Reserve might begin trimming rates in 2025.
More pressing for positioning are the upcoming US PMI numbers. If figures confirm steady output from private firms, it may ease immediate fears around contraction but also challenge rate-cut expectations. We need to be nimble—any upside beat could pull the Dollar higher and force a reassessment of position sizes, particularly where short USD bias is concerned.
In Washington, talks around former President Trump’s tax measures continue, injecting policy uncertainty into near-term outlooks. Meanwhile, executives at several Federal Reserve branches have been raising red flags. The Cleveland and San Francisco Fed Presidents cited ongoing challenges within the economy, while the Atlanta Fed leader highlighted disruptions within key transport channels. Concerns like these feed into uncertainty, and by extension may increase market volatility. Structural debt concerns aren’t going away either, with Moody’s recent downgrade on US sovereign credit shedding more light on long-term fiscal risk. The warning that debt could rise sharply by 2035 might feel far off—but long-end rate markets are already responding.
Over in Asia, tensions ratcheted up again. Beijing’s comments accusing Washington of restricting technological competition through chip export controls will keep traders uneasy, especially in tech-related sectors. The People’s Bank of China lowered its Loan Prime Rates, likely seeking to cushion domestic credit markets and offer relief to struggling areas of the economy. This adds another loose-policy impulse into the macro mix, which isn’t insignificant for cross-border flows.
Back in Australia, political shifts have returned the Labor Party to power following a coalition collapse, introducing another layer of uncertainty about fiscal priorities and regulatory direction. While not yet market-moving, it could drive sentiment depending on policy signalling in the next sessions.
Currently, the AUD/USD sits near 0.6440. The pair has found some support from momentum indicators and remains above short-term moving averages. That said, resistance lies reasonably close at 0.6515 and stretches further to 0.6687. Any sustained break below minor support at 0.6427, and more so at 0.6367, could open a path downward toward levels not seen since early 2020. If risk aversion picks up globally, that pressure could escalate fairly quickly.
Of interest on the crosses, the Aussie has firmed most noticeably versus the New Zealand Dollar, but performance has been more mixed against the Greenback, Euro and Canadian Dollar. Differentials in policy direction, particularly between central banks, are now front and centre and may determine much of the price action heading into the next fortnight. Watching upcoming releases is essential, especially those tied to services activity and labour markets, as these are arguably more forward-looking than manufacturing data.
From here, timing and execution are everything. Liquidity may thin ahead of key macroeconomic updates, increasing the likelihood of sharp intraday moves. While sentiment currently leans towards softer US data aiding the carry trade, that angle only holds while inflation and labour numbers stay tame. Our task is clear—monitor rates, track policy chatter, and stay reactive as technical levels come into play.
