Australian Dollar stays low despite improved Q2 GDP and China’s Services PMI.

• The Australian dollar hasn’t shown much movement despite a 0.6% increase in domestic production for the second quarter.
• In China, the Caixin Services PMI rose to 53.0 in August, better than the anticipated 52.5.
• According to the CME FedWatch tool, there’s over a 91% chance of a 25-basis point reduction by the Fed in September.

The Australian Dollar (AUD) didn’t change much against the US Dollar (USD) on Wednesday, following a 0.5% gain in the previous session. The AUD/USD pair remains somewhat limited after the release of Australia’s second-quarter GDP figures and China’s Caixin Services PMI. Later today, attention will also be on the job reports and the Fed’s Beige Book in the US.

The Australian Bureau of Statistics (ABS) reported a 0.6% rise in production gross product for the second quarter, compared to a revised 0.3% growth from the first quarter, which was initially reported as 0.2%. This figure exceeded expectations, which were set at a 0.5% increase. Year-on-year, GDP grew by 1.8%, surpassing a revised 1.4% from the first quarter and exceeding the consensus estimate of 1.6%.

In China, the Caixin Services PMI unexpectedly increased to 53.0 in August from 52.6 in July, surpassing market forecasts.

The US Dollar Index (DXY), which measures the dollar against six key currencies, has gained for a second consecutive day, trading around 98.50. Stronger yields on US Treasury bonds — 3.65% for two-year and 4.28% for ten-year notes — have helped bolster the dollar. With these rising Treasury yields, more capital is flowing into US assets, making them more attractive to global investors.

Still, the dollar’s gains might be restrained this month due to uncertainties surrounding the Fed’s outlook and controversial comments from its officials. As noted by the CME FedWatch tool, there’s now a 91% or higher likelihood of a 25-basis point cut at the Fed’s September meeting, an increase from an 86% likelihood observed just a day prior.

Traders are keenly awaiting labor market data this week, which could influence Federal Reserve policy decisions in September. Key upcoming reports will cover variations in ADP employment, average hourly earnings, and August non-farm payrolls.

Australian dollar struggles amid easing RBA rate cut predictions

• The annual consumer price index in Australia surged by 2.8% in July, surpassing the previous year’s 1.9% increase and the forecast of 2.3%. This persistently high inflation makes it less likely for the Reserve Bank of Australia (RBA) to cut rates soon, which should support the Australian dollar.
• Building permits in Australia fell by 8.2% month-on-month in July, exceeding expectations of a 4.8% decline after an 11.9% increase previously. Annual data showed a 6.6% rise following a previous increase of 27.4%.
• Recent data revealed that China’s Manufacturing PMI jumped from 49.5 in July to 50.5 in August. Given the close trade relationship between China and Australia, such shifts in the Chinese economy can impact the AUD.
• China’s National Bureau of Statistics reported that the production PMI rose slightly to 49.4 from 49.3 in July, slightly missing expectations of 49.5, marking a fifth month of declines. The non-manufacturing PMI, however, increased to 50.3 in August, aligning with market consensus.
• In the US, the Institute for Supply Management’s (ISM) Manufacturing PMI rose to 48.7 from 48.0 in July, still below the expected 49.0. Meanwhile, the ISM employment index for manufacturing ticked up to 43.8 from 43.4, while production prices decreased.
• U.S. Treasury Secretary Scott Bescent noted on Tuesday that the Supreme Court is expected to allow Trump to invoke emergency rights from 1977 and impose tariffs on trading partners. Meanwhile, Trump pledged to seek a swift ruling from the court.
• There’s growing concern about the Fed’s independence amidst questions regarding the legality of Fed Governor Lisa Cook’s dismissal following a recent court hearing that ended without a temporary halt.
• Bescent acknowledged the need for the Fed to maintain political independence, albeit vaguely critiquing the Fed for making multiple mistakes.
• The Personal Consumption Expenditures (PCE) price index in the US remained stable at 2.6% year-on-year in July, consistent with market expectations. The Core PCE price index, which excludes food and energy, rose to 2.9% year-on-year, as expected, up from 2.8% in June.
• San Francisco Federal Reserve President Mary Daly indicated that policymakers are prepared to cut interest rates soon, suggesting that inflation caused by tariffs is transitory, according to Bloomberg.
• Governor Christopher Waller expressed support for interest rate cuts at the upcoming September meeting and hinted at additional cuts over the next several months to prevent a downturn in the labor market.

Australian Dollar Tests EMA Support Near 0.6500

The AUD/USD pair is trading around 0.6520 on Wednesday. A closer look at the daily chart reveals that the pair breached the upward trendline, hinting at a potential shift from bullish to bearish momentum. Nonetheless, it’s still above the nine-day exponential moving average (EMA), denoting strong short-term price momentum. A breach below this EMA could signal bearish confirmation.

The primary support level stands at the nine-day EMA of 0.6516, followed by the 50-day EMA at 0.6502. A drop below this crucial support area could lead the AUD/USD to test its three-month low of 0.6414, recorded on August 21.

On a positive note, if the AUD/USD manages to rebound off the upward trendline to around 0.6540, this could give it the support needed to challenge the five-week high of 0.6568 observed on August 14, with the previous nine-month high at 0.6625 reached on July 24.

AUD/USD: Daily Charts

The Australian dollar prices today reflect that it is currently the weakest against the US dollar among major currencies.

The heatmap demonstrates the change rates for major currencies, with the Australian dollar notably weaker against the US dollar today.