AUD/USD Falls Below 0.6650 As Strong US PMI Weighs On Dollar

AUD/USD weakened for the third consecutive day in early Asian trading on Monday, trading around 0.6640. A stronger U.S. dollar (USD) supported the AUD/USD pair’s decline following the release of positive U.S. S&P Purchasing Managers’ Index (PMI) data for June.

U.S. business activity rose to a 26-month high in June as employment rebounded. S&P Global’s preliminary composite PMI for June, released on Friday, rose to 54.6 from the final May reading of 54.5, the highest level since April 2022. Meanwhile, the preliminary manufacturing PMI for June rose to 51.7 from the previous reading of 51.3, higher than the expected reading of 51. The preliminary services PMI for June rose to 55.1 from 54.8, higher than the expected 53.7. The stronger-than-expected U.S. PMI provided some support to the dollar and was bearish for AUD/USD.

Federal Reserve (Fed) officials stressed that they will continue to rely on economic data for interest rate policy, as they need more confidence that inflation will move toward the Fed’s 2% target before they can cut rates. The CME FedWatch tool shows that investors currently see a nearly 64% chance of a Fed rate cut in September.

On the Australian dollar, the weak preliminary Australian Purchasing Managers’ Index for June released by Japan’s JUDO Bank indicated that the Australian economy was fragile, which put some selling pressure on the Australian dollar (AUD). However, the Reserve Bank’s hawkish stance may support the Australian dollar and limit the downside of the AUD/USD in the short term. At a recent press conference, Reserve Bank Governor Michele Bullock said that the board discussed the option of raising interest rates and denied a rate cut in the short term.

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