Home Daily Commentaries AUD tests 70 US cents following downbeat United States Services PMI

AUD tests 70 US cents following downbeat United States Services PMI

Daily Currency Update

The Australian dollar finished over a cent higher this week on improved risk sentiment despite finishing 0.14% lower on Friday.  Flash Manufacturing and Services PMI results both contracted for the month of July compared to June yet recorded its six-straight month of growth. The news did little to move the local currency as private sector output and new orders increased. Future interest rate rises, and inflationary pressures are set to put potential downside risk on the sector.

The majority of price action occurred in overnight markets on Friday evening as the AUD/USD hit intraday highs of 0.6974. The greenback was sold off following a disappointing read on Flash Services PMI in the United States, contracting in July for the first time in two years. Profit taking was seen into the closing bell and finished at 0.6922.

The Australian dollar opens this morning at 0.6924 with little domestic data on the horizon today. All eyes will be on the eagerly awaited inflation print for the month of July, due for release on Wednesday morning. We expect support levels to hold onto moves approaching 0.6880 while any upward push will likely meet resistance at the psychological level of 70 US cents.

Key Movers

A plethora of disappointing Services and Manufacturing data out of the European region saw the EUR/USD initially dip to lows of 1.0129 on Friday. The reading out of France of 49.6 for July saw a 20-month low as the economy heads towards stagnation into the third quarter. The Euro was eventually supported higher as ECB President Christine Lagarde said they will raise rates for as long as it takes to bring inflation back to target signalling a move away from historic lows in monetary policy setting. The ECB moved rates higher by 50bps for the first time in over a decade on Thursday.

Elsewhere the greenback was also weaker on Friday as both Flash Service and Manufacturing PMI numbers contracted for July as recession and rising inflation look to put pressure on the FOMC to raise rates faster than its current pace. The US Dollar Index (DXY) initially dropped to 1.0611 before recovering to finish 0.06% lower on the day to 1.0654. The GBP/USD cross closed higher (1.2004) following a slight rise in their Manufacturing and Services PMI and its 17th straight month of expansion. Retail sales were also a slightly better reading than expected despite still falling 0.1% in June.

This week takes focus on the Federal Open Market Committee (FOMC) which is set to potentially raise rates by a full percentage point on Thursday morning as they look to curb rising inflation which hit a 41-year high of 9.1% in June. The CME Fedwatch Tool is currently pricing an 80% chance of a 75bps hike by the Federal Reserve.

Expected Ranges

  • AUD/USD: 0.6210 - 0.6300 ▼
  • AUD/EUR: 0.6740 - 0.6800 ▼
  • GBP/AUD: 1.7200 - 1.7550 ▲
  • AUD/NZD: 1.1000 - 1.1100 ▼
  • AUD/CAD: 0.8900 - 0.9000 ▲