Australian Dollar increases gains despite mixed PMI

• The Australian Dollar remains strong as the PMI indicates a mixed economic outlook.
• Judo Bank Australia manufacturing activity improved in November but remained in contraction, while services activity fell into negative territory.
• The US Dollar Index hit its new yearly high of 107.15 after US Initial Jobless Claims were released on Thursday.

The Australian Dollar (AUD) continues to strengthen against the US Dollar (USD) following the release of mixed Judo Bank Australia Purchasing Managers’ Index (PMI) data on Friday. The AUD also benefits from a hawkish outlook from the Reserve Bank of Australia (RBA) on future interest rate decisions.

Judo Bank Australia’s manufacturing PMI rose to 49.4 in November from 47.3 in October, marking its 10th consecutive month of contraction, although the decline slowed to its weakest pace in six months. Meanwhile, the services PMI fell to 49.6 from 51.0, signaling the first contraction in services activity in ten months.

The US Dollar Index (DXY), which tracks the USD against a basket of major currencies, is trading near 107.00, just below its new yearly high of 107.15 recorded on Thursday. The US dollar strengthened following the release of initial jobless claims data for the previous week.

Futures traders now assign a 57.8% probability that the Federal Reserve cut rates by a quarter point, down from about 72.2% last week, according to data from the CME FedWatch tool.

Daily Market Summary: Australian Dollar Appreciates on RBA’s Hardline Stance

• Traders await preliminary US S&P Global Purchasing Managers’ Index (PMI) data and the final Michigan Consumer Sentiment report scheduled for release on Friday.
• The Judo Bank PMI Composite Output Index fell to 49.4 in November from 50.2 in October, indicating a modest contraction in private sector output for the second time in three months.
• Initial US jobless claims fell to 213,000 for the week ending November 15, from the revised 219,000 (previously 217,000) the previous week and below the expected 220,000.
• The US dollar gained ground due to cautious comments from Federal Reserve (Fed) officials. Furthermore, market expectations suggest that the incoming Donald Trump administration will boost inflation, thereby slowing the Fed’s rate cut trajectory, offering support to the Dollar.
• A Reuters poll indicated that nearly 90% of economists (94 of 106) anticipate a 25 basis point cut in December, lowering the federal funds rate to 4.25%-4.50%. Economists predict more moderate rate cuts in 2025 due to the risk of higher inflation from President-elect Trump’s policies. The federal funds rate is forecast to be 3.50%-3.75% by the end of 2025, which is 50 basis points higher than last month’s projection.
• Minutes from the Reserve Bank of Australia’s November meeting indicated the central bank’s board remains vigilant over the possibility of higher inflation, underscoring the importance of maintaining tight monetary policy. Although council members noted there is no “immediate need” to alter the cash rate, they kept options open for future adjustments, emphasizing that all possibilities remain on the table.
• Federal Reserve Bank of Boston President Susan Collins said Wednesday that while more interest rate cuts are necessary, policymakers must proceed cautiously to avoid moving too fast or too slow, according to Bloomberg. . Meanwhile, Fed Governor Michelle Bowman noted that inflation remained elevated in recent months and underscored the need for the Fed to proceed cautiously with rate cuts.
• Australian Treasurer Jim Chalmers stated that “falling iron ore prices and a slowing labor market have affected government revenues,” following his ministerial statement on the economy on Wednesday. Chalmers outlined Australia’s tough fiscal outlook, citing the weakening of China, a key trading partner, and a slowing labor market as contributing factors.
• Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy’s resilience, robust labor market and persistent inflation pressures. Powell commented, “The economy is not sending any signal that we need to rush to lower rates.”

Technical Analysis: Australian Dollar tests nine-day EMA above 0.6500

AUD/USD hovers near 0.6510 on Friday, with a analysis Daily chart technical pointing to a bearish outlook. The pair remains within a descending channel, and the 14-day Relative Strength Index (RSI) is below 50, reinforcing the negative sentiment.

On the downside, the AUD/USD pair could target the lower boundary of the descending channel at 0.6360, followed by its yearly low of 0.6348, reached on August 5.

On the rise, the pair AUD/USD faces endurance at the nine-day EMA of 0.6518 and the 14-day EMA of 0.6533. A break above these levels could decrease the bearish bias and pave the way for a rally towards the four-week high of 0.6687.

AUD/USD: Daily Chart