The Australian dollar is facing downward pressure, trading below $0.703 and on track for a weekly loss. This decline is driven by a strengthening US dollar and weaker-than-expected domestic PMI data, which indicates slower growth alongside persistent inflation. While a March rate hike in Australia is increasingly likely, supported by firmer domestic data and hawkish signals from policymakers, the currency remains subdued due to the confluence of factors impacting market sentiment.
- The Australian dollar slipped below $0.703, poised for its first weekly loss in five weeks.
- February flash PMIs showed a cooling across the board, indicating slower growth but persistent inflation pressures.
- Composite PMI fell to 52.0 in February from 55.7 in January.
- Services PMI eased to 52.2 from 56.3.
- Manufacturing PMI edged down to 51.5 from 52.3.
- The likelihood of a March rate hike in Australia is rising.
- Markets assign a 76% probability that the Reserve Bank will lift its cash rate by May.
- The AUD/USD pair remains under pressure as the US Dollar (USD) draws support after US Initial Jobless Claims declined.
The Australian dollar’s performance is being weighed down by conflicting economic signals. While domestic indicators suggest potential for interest rate hikes to combat inflation, the currency’s strength is being undermined by a stronger US dollar and data pointing to a slowdown in the Australian economy. This creates a challenging environment for the asset, as positive domestic developments are being offset by external pressures and signs of weakening economic activity.