The AUD/USD pair has been trading with mild losses near 0.6800 during Monday’s early Asian session, with investors closely watching key economic data from both the United States and Australia. The market remains cautious as it anticipates the release of the U.S. Purchasing Managers Index (PMI) and the Reserve Bank of Australia’s (RBA) interest rate decision on Tuesday.
Key Drivers Affecting AUD/USD
Several factors are contributing to the pair’s current movement, including expectations of additional Federal Reserve (Fed) rate cuts, mixed Australian economic data, and the upcoming RBA decision. Let's explore how each of these elements is influencing the AUD/USD market.
1. U.S. Fed Rate Cuts and USD Pressure:
The U.S. Federal Reserve made a significant move last week, cutting interest rates by half a percentage point to a range of 4.75% to 5.00%. This was a larger-than-usual cut, reflecting the Fed’s intent to combat easing inflation while maintaining low unemployment. Fed Chair Jerome Powell emphasized the central bank’s commitment to balancing inflation control with economic stability, signaling that further cuts—up to 75 basis points—could occur by the end of the year.
For the AUD/USD pair, expectations of additional Fed rate cuts are likely to weigh on the U.S. Dollar (USD), making it less attractive relative to the Australian Dollar (AUD). A weaker USD generally supports the AUD in this pair, but the USD is still under pressure from economic uncertainty in the U.S., making any bullish movements limited for now.
2. Australian PMI Data Shows Economic Slowdown:
On the Australian front, the latest data from Judo Bank and S&P Global showed a slowdown in the country’s economic activity. The preliminary reading of Australia’s Manufacturing PMI dropped to 46.7 in September from 48.5 in August, indicating a contraction in the sector. Meanwhile, the Services PMI also weakened, falling to 50.6 in September from 52.5 in the prior month. The Composite PMI, which combines both manufacturing and services data, declined to 49.8, down from 51.7.
These disappointing PMI figures reflect a slowing Australian economy, with weaker-than-expected manufacturing activity and a tepid services sector. This has led to mild losses for the AUD as market participants reassess the outlook for economic growth.
3. RBA Rate Decision in Focus:
All eyes are now on the RBA, which is expected to keep the Official Cash Rate (OCR) unchanged at 4.35% during its meeting on Tuesday. While inflationary pressures have eased somewhat, RBA Governor Michele Bullock has stated that the central bank is not considering cutting rates in the near term, even as other central banks around the world opt for cuts.
The Australian labor market has shown resilience, with the unemployment rate holding steady at 4.2% in August. This has reduced the likelihood of a near-term rate cut, although the RBA will likely keep a close watch on global economic developments, especially those tied to the Fed’s monetary policy.
Outlook for the Week Ahead
As the week progresses, the AUD/USD pair will likely be influenced by key data releases and central bank decisions. U.S. PMI data, along with comments from Fed officials, could further clarify the Fed’s rate-cutting trajectory, while the RBA decision will provide insights into Australia’s monetary policy direction.
With both central banks in focus and economic data on the horizon, traders should stay vigilant and closely monitor the markets for any developments that could shift the balance in the AUD/USD pair.
