Australian Dollar hovers above a major level amid a subdued US Dollar, focus on US PMI

• Australian Dollar continues its winning streak after the positive Services PMI on Thursday.
• Australia’s ASX 200 extends losses on weak sentiment due to expectations of prolonged higher borrowing costs.
• FOMC Minutes reflect caution regarding interest rate cuts that could potentially delay the start of an easing cycle.
• US Dollar faces challenges as US Treasury yields retrace recent gains.
• Investors await S&P US PMI data, weekly Initial Jobless Claims, and Existing Home Sales on Thursday.

The Australian Dollar (AUD) extends its winning streak on Thursday that began on February 14. This positive momentum was fueled by encouraging preliminary Australian Purchasing Managers Index (PMI) data. The data indicated a notable return to growth in private sector activity in February, marking the end of a five-month downturn, particularly driven by robust expansion in the services sector. However, the manufacturing sector encountered difficulties due to increased interest rates, leading to the most significant decline in output since May 2020.

Australian Dollar (AUD) could face hurdles stemming from softer Aussie money markets, as the S&P/ASX 200 Index registers its third consecutive decline amidst subdued sentiment. The recent release of the Federal Open Market Committee (FOMC) Minutes, expressing caution regarding interest rate cuts, might postpone the onset of an easing cycle. Additionally, the Reserve Bank of Australia's (RBA) meeting minutes earlier this week shifted market sentiment towards the probability of no imminent rate cuts.

The US Dollar Index (DXY) encountered downward pressure despite the rise in US Treasury yields on Wednesday following the cautious tone expressed in the FOMC Minutes regarding the pace of interest rate reductions. The Meeting Minutes highlighted the necessity for further evidence of disinflation to alleviate concerns about upside risks. Presently, futures in funds indicate that approximately 70% of the market anticipates a rate cut by the Fed's June meeting. According to the CME FedWatch Tool, there's now a 52.2% probability assigned by the market for the initiation of easing to commence in June.

Daily Digest Market Movers: Australian Dollar strengthens on improved Services PMI

• Judo Bank Australia Composite PMI increased to 51.8 in February from the previous reading of 49, indicating the first month of expansion in the Australian private sector after a five-month period of contraction.
• Judo Bank Australia Services PMI rose to 52.8 from the previous reading of 49.1. Manufacturing PMI fell to 47.7 from 50.1 prior due to a significant drop in new orders.
• Australian Wage Price Index (QoQ) grew by 0.9% in the fourth quarter as expected, lower than the previous rise of 1.3%. The index rose by 4.2% year-over-year, surpassing the market expectation to be unchanged at 4.1%.
• Westpac Leading Index (MoM) declined by 0.1% in January against the previous reading of flat 0.0%.
• The ANZ-Roy Morgan Consumer Confidence improved to 82.8 this week from 82.6 prior. Remarkably, the index has now spent a record 55 consecutive weeks below the mark of 85.
• RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe, it was acknowledged that this process would "take some time." Consequently, the board agreed that it was prudent not to rule out another rate hike.
• S&P's analysis of the FOMC minutes suggests that inflation is expected to continue cooling in the upcoming months, despite the ongoing uneven disinflationary trends. They maintain their outlook for monetary policy in 2024, anticipating no changes. S&P predicts that the Federal Reserve will likely reduce its policy rate by 25 basis points at its June meeting, with further cuts totaling 75 basis points by the end of the year.
• Richmond Federal Reserve Bank President Thomas Barkin told Reuters that the United States still has "ways to go" to achieve a soft landing. He highlighted the overall positive trajectory of US data concerning inflation and employment. However, Barkin noted that recent figures on the Producer Price Index (PPI) and Consumer Price Index (CPI) have been less favorable, indicating a reliance on disinflation from goods. He suggested that the US is nearing the end of its inflation challenge, with the pressing question being the duration until resolution.

Technical Analysis: Australian Dollar maintains its position above the major support of 0.6550

The Australian Dollar traded around the major level at 0.6560 on Thursday, which is positioned above the immediate support level of 0.6550. A break below this major level could retest the weekly low at 0.6521 followed by the psychological support level of 0.6500. On the upside, the AUD/USD pair could face a key resistance area around the 50-day Exponential Moving Average (EMA) at 0.6574 and the three-week high at 0.6579. A break above this region could lead the AUD/USD pair to approach the resistance zone around the psychological level of 0.6600 and 38.2% Fibonacci retracement level of 0.6606.

AUD/USD: Daily Chart