Economic Update: Australian Dollar and Global Indicators

• The Australian dollar is experiencing some limitations following a decrease in the trade surplus, which came in at 2,238 million in May, significantly lower than the anticipated 5,091 million.
• China’s Caixin Services PMI dipped to 50.6 in June, down from 51.1 in May, and falling short of the expected 51.0.
• Market analysts predict an increase of 110,000 in US non-farm employment for June.

The Australian Dollar (AUD) faced challenges against the US Dollar (USD) on Thursday after key economic indicators were released. The US dollar itself might also lose some strength, as there are growing expectations that the Federal Reserve could reduce interest rates, particularly after a disappointing ADP National Employment Report.

The Australian Bureau of Statistics (ABS) reported a narrowed trade surplus of 2,238 million in May, compared to the previous month’s numbers of 5,091 million in May and 4,859 million in April, which was revised from an original 5,431 million. Exports decreased by 2.7% month-on-month, recovering from an earlier reported decline of 1.7%, while imports rose month-on-month by 3.8%, up from 1.6%.

The S&P Global Australia Composite Purchasing Managers’ Index (PMI) improved to 51.6 in June from a previous figure of 50.5, marking its fastest growth in a year. Simultaneously, the services PMI increased from 50.6 to 51.8, reflecting the quickest growth pace since May 2024.

In China, which is a crucial trade partner for Australia, the Caixin Services PMI dropped to 50.6 in June, failing to meet market projections of 51.0.

The Australian dollar could face a decline despite a weaker US dollar ahead of labor data

• The US Dollar Index (DXY) is hovering near 96.70 as traders look forward to important labor market figures, including the US non-farm payrolls (NFP) and average hourly earnings set to be released later in the day. Additionally, the ISM Services PMI and the S&P Global US PMI will also be out on Thursday.
• U.S. ADP employment figures fell for the first time in over two years, with private sector jobs declining by 33,000 in June, following a downward revision of a 29,000 gain in May. This was considerably below the anticipated increase of 95,000.
• President Trump’s top trade officials were apparently pursuing gradual tariff agreements with certain countries, hoping to finalize them by a July 9 deadline, after which he intended to impose new tariffs.
• Federal Reserve Chairman Jerome Powell recently indicated that the US Central Bank would analyze more data before easing its monetary policy, although he did not dismiss the possibility of interest rate cuts at the upcoming July meeting.
• U.S. Treasury Secretary said he believes the Federal Reserve may lower interest rates sooner than the fall, possibly by September at the latest.
• US ISM Manufacturing PMI increased to 49.0 in June, up from 48.5 in May, surpassing the 48.8 expectation, which suggests improved economic activity within the U.S. manufacturing sector. Job openings also increased significantly to 7.76 million in May compared to the previous month’s 7.395 million, exceeding the anticipated increase of 7.3 million.
• The US Senate narrowly approved President Trump’s significant budget bill by a vote of 51-50, and the bill is on its way to the House of Representatives, where it may face tough opposition. Trump, who has campaigned against federal deficit growth, is poised to sign legislation that adds trillions to national debt over the next decade.
• Recently released data show the Caixin manufacturing purchasing managers’ index in China rose from 48.3 in May to 50.4 in June, surpassing market predictions of 49.0. The economic shifts in China could affect the AUD due to the close trading relationship between the two nations.
• The Australian Bureau of Statistics also noted a modest monthly increase of 0.2% in May compared to a previous flat 0%, which fell short of market expectations of 0.4%. Building approvals saw a rise of 3.2% in May, rebounding from a 4.1% drop though still less than the expected 4.8% increase.
• Australia’s S&P Global Manufacturing PMI decreased to 50.6 from 51.0 in June, hitting its lowest mark since February due to adequate client inventory and lackluster market conditions.

The Australian dollar is likely to retract from an eight-month peak of nearly 0.6600

As of Thursday, AUD/USD is trading at approximately 0.6570. Daily technical analysis indicates a sustained bullish trend as the pair continues to rise within an ascending channel. The 14-day relative strength index (RSI) sits above the 50 mark, reinforcing these positive sentiments. Moreover, the pair has surpassed the nine-day exponential moving average (EMA), hinting at strong short-term momentum.

On the flip side, the AUD/USD pair could revisit the eight-month high of 0.6590 recorded on July 1. A successful breach of this level might provide support, enabling a test of the upper boundary of the rising channel at 0.6660.

A nine-day EMA at 0.6549 appears to be a critical support level; falling below this could weaken the short-term price momentum and exert downward pressure on the AUD/USD pair, possibly testing the lower limit of the upward channel at 0.6490, which aligns with the 50-day EMA at 0.6466.

AUD/USD: Daily Charts

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