AUDUSD pair struggles to capitalize on last week’s rally.
The AUDUSD pair struggles to capitalize on last week’s rally from sub-0.6600 levels, oscillating in a narrow trading zone during the Asian session on Monday. Spot prices are now trading in the mid-0.6600s, essentially flat for the day, and have moved little in response to the official Chinese PMI data.
A bullish risk tone and a slightly better-than-expected Chinese PMI strengthen the pair.
The mixed US PCE Price Index issued on Friday cast doubt on the likelihood of a more aggressive policy tightening by the Federal Reserve (Fed) while boosting investor optimism. This, in turn, favors the risk-averse Australian. This, along with weaker-than-expected US Dollar (USD) demand, works as a tailwind for the AUDUSD pair, which also benefits from somewhat better-than-expected Chinese economic data.
Indeed, according to official statistics released by the country’s National Bureau of Statistics (NBS), China’s Manufacturing PMI was 50.5 in June, compared to the 50.2% expected. This, however, is lower than May’s figure of 50.9% and does nothing to alleviate concerns about the world’s second-largest economy slowing. Aside from that, bets on more Fed rate rises strengthen the USD and limit the AUDUSD pair.
Fed rate rise bets aid to restore USD demand while limiting big gains.
In fact, current market pricing implies that there is a roughly 85% possibility of a 25-bps lift-off at the next auction. In July, the FOMC will have a policy meeting. Furthermore, Fed Chair Jerome Powell warned last week that borrowing prices may need to rise by up to 50 basis points by the end of the year. This continues to be supportive of rising US Treasury bond rates, which bodes well for the appearance of some USD dip-buying and keeps the AUDUSD pair under control.
Market players are now anticipating the publication of the US ISM Manufacturing PMI later this morning during the early North American session, which will kick off this week’s significant US macro data planned at the start of a new month.
Meanwhile, the major attention will be on the FOMC meeting minutes on Wednesday and the closely-watched US monthly employment figures – colloquially known as the NFP.
