Australian dollar strengthens on the release of higher Producer Price Index data.
The Australian Dollar (AUD) has recovered its daily losses against the US Dollar (US) following the announcement of stronger Producer Price Index (PPI) data on Friday. However, this potential gain may be limited due to rising risk aversion ahead of future US job market data, such as the July Nonfarm Payrolls report.
The US dollar benefited from greater risk aversion amid growing concerns about the US economy.
The Australian dollar faces hurdles as second-quarter inflation data has reduced prospects for another rate hike by the Reserve Bank of Australia (RBA) will have its policy meeting next week. Markets now predict a 50% possibility of an RBA rate drop in November, far earlier than originally expected in April next year. These factors add to the downward pressure on the Australian dollar.
Recent manufacturing and employment data have heightened concerns about the US economy, increasing risk aversion and strengthening the US dollar. Markets are wrestling with a delicate balancing act as an economic slowdown heightens prospects of a Federal Reserve rate drop. The CME’s FedWatch Tool shows that traders are completely pricing in a 25 basis point rate decrease on September 18, with a one-in-five probability of a 50 basis point cut.
Daily Market Movers: The Australian Dollar Advances PPI data.
The US ISM Manufacturing Purchasing Managers Index (PMI) fell to an eight-month low of 46.8 in July, compared to the prior reading of 48.5 and the expected increase to 48.8.
US first jobless claims for the week ended July 26 jumped to 249K from 235K the previous week, exceeding the projected increase of 236K.
China’s Caixin Manufacturing Purchasing Managers Index (PMI) fell to 49.8 in July, below the expected reading of 51.5 and the previous reading of 51.8. Because both countries are close trading partners, economic developments in China can have a big impact on the Australian market.
Australian Bureau of Statistics (ABS) announced a trade surplus of 5,589 million for June.
The Australian Bureau of Statistics (ABS) announced a trade surplus of 5,589 million for June, exceeding the expected 5,000 million but still falling short.
the previous reading was 5,773 million.
During a press conference, Federal Reserve Chair Jerome Powell said a rate cut in September is “on the table.” According to Reuters, Powell said the central bank will constantly monitor the labor market for signals of a potential steep drop.
The ABS stated on Wednesday that the monthly CPI increased by 3.8% in the year to June, down from 4% in May. The quarterly CPI increased by 1% quarter on quarter and 3.8% year on year in the second quarter of the year. The RBA Trimmed Mean CPI, the central bank’s preferred gauge, increased by 3.9% YoY in Q2, compared to the expected and prior figure of 4.0%.
