Australian Dollar Subdued as US Dollar Holds Ground Ahead of ISM Services PMI
Australian Dollar Struggles as US Dollar Gains Strength
The Australian Dollar (AUD) has lost ground against the US Dollar (USD) on Wednesday, despite offering daily gains earlier. The AUD/USD pair remains in positive territory following the release of mixed economic data from Australia.
Economic Data and Its Impact
Australia’s Gross Domestic Product (GDP) expanded by 0.2% quarter-over-quarter in Q1, falling short of the expected 0.4% rise. The annual GDP growth rate remained consistent at 1.3%, below the expected 1.5%. Additionally, the S&P Global Australia Composite Purchasing Managers’ Index (PMI) fell to 50.5 in May from April’s 51.0 reading, indicating marginal growth in business activity.
US Economic Data and Tariff Uncertainty
The US Dollar Index (DXY) is trading lower at around 99.10, struggling due to rising tariff uncertainty and its potential impact on US economic growth. The US ISM Services Purchasing Managers’ Index (PMI) survey results are due on Wednesday, with a slight recovery expected in aggregate business operator sentiment.
Trade Tensions and Their Implications
US President Donald Trump announced plans to double import tariffs on steel and aluminum, intensifying the trade war. China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) unexpectedly fell to 48.3 in May, falling short of market expectations. The Reserve Bank of Australia (RBA) expressed caution, noting that higher US tariffs will put a drag on the global economy.
Future Developments and Takeaways
The AUD/USD pair is trading around 0.6470, indicating a prevailing bullish bias. The immediate support appears at the nine-day EMA of 0.6456, aligned with the ascending channel’s lower boundary around 0.6450. A successful breach below this crucial support zone could dampen the bullish bias and lead the AUD/USD pair to test the 50-day EMA at 0.6395.
The Australian Dollar could be impacted by Chinese economic data, as both countries are close trading partners. The RBA is expected to deliver more rate cuts in the upcoming policy meetings, acknowledging progress in curbing inflation and warning that US-China trade barriers pose downside risks to economic growth.
