Australian dollar strengthens as inflation rises, and business activity slows in September
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Daily Currency Update
The Australian dollar (AUD) gained ground against the US dollar (USD) on Wednesday, buoyed by the latest economic data showing a modest increase in inflation alongside signs of slowing growth in the manufacturing and services sectors. Australia’s Monthly Consumer Price Index (CPI) rose by 3.0% year-over-year in August, up from a 2.8% increase recorded in July. This uptick suggests persistent inflationary pressures in the Australian economy, which may influence the Reserve Bank of Australia’s future monetary policy decisions. The steady rise in consumer prices indicates that demand remains relatively strong despite global economic uncertainties. On the other hand, the preliminary data from the S&P Global Composite Purchasing Managers’ Index (PMI) painted a more cautious picture of economic activity in September. The Composite PMI dropped to 52.1, down from 55.5 in August, marking the lowest reading in three months. This decline points to a slowdown in overall business activity, driven by both the manufacturing and services sectors. The Services sector, which represents a significant portion of the Australian economy, saw its PMI fall to 52.0 in September from 55.8 in the previous month. The slowdown was attributed to weaker new business inflows and more subdued client demand. Similarly, the manufacturing sector’s PMI decreased to 51.6 from 53.0, reflecting the fastest pace of decline in goods orders in eight months and signalling challenges such as supply chain disruptions and cautious consumer spending. Overall, while inflation remains elevated, the easing in business activity growth suggests that economic momentum may be cooling. Market participants will be closely watching upcoming data releases and the Reserve Bank’s response as they assess the outlook for the AUD and Australia’s economic trajectory in the months ahead.Key Movers
The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, is gaining momentum after two consecutive days of declines. During Wednesday’s Asian trading session, the index hovered around the 97.30 level as market participants await key upcoming economic data that could set the tone for the dollar’s near-term direction. Investors are closely watching the release of the US Q2 Gross Domestic Product (GDP) Annualised figure and the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation, both scheduled for later this week. These reports are expected to provide crucial insights into the strength of the US economy and inflationary pressures, potentially influencing the Federal Reserve’s future monetary policy decisions. Adding to the cautious sentiment, the flash reading of the S&P Global Purchasing Managers’ Index (PMI) revealed a slowdown in US business activity in September. The Composite PMI declined to 53.6 from 54.6 in August, indicating that growth in the private sector is losing steam. Both manufacturing and services sectors showed signs of easing momentum, with the Manufacturing PMI slipping to 52.0 from 53.0, pointing to a gradual deceleration in factory output and orders. Similarly, the Services PMI decreased to 53.9 from 54.5, suggesting that demand in the services sector may be moderating. Taken together, these indicators highlight a private sector that is facing challenges in maintaining its earlier growth pace amid a backdrop of ongoing economic uncertainties. As traders await the GDP and PCE data, the US Dollar Index’s movements will likely reflect shifting expectations around economic growth and inflation, and by extension, the Federal Reserve’s policy path.Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0400 - 2.0600 ▼
- AUD/NZD: 1.1200 - 1.1400 ▲
- AUD/CAD: 0.9000 - 0.9200 ▼