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The AUD/USD: Services PMIs and Tariffs Crucial for Aussie Dollar Demand
For the Australian dollar, the S&P Global Australian Services PMI spotlit the AUD/USD early in the February 5 session. Accounting for over 70% of Australia’s GDP, January’s PMI data could bolster the case for a February RBA rate cut.
The PMI rose from 50.8 in December to 51.2 in January, up from a preliminary 50.4.
Beyond the headline PMI, employment and price trends tested expectations of a more dovish RBA rate path. Firms cut increased staffing levels, with input price inflation accelerating, dampening bets on multiple H1 2025 RBA rate cuts.
Jingyi Pan, Economist Associate Director at S&P Global Market Intelligence, previously commented on price trends:
“Not only have rising prices dampened sales thus far according to anecdotal evidence, the potential to keep interest rates elevated for longer also poses a threat to the outlook for growth in 2025.”
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Australian Dollar Daily Chart
Turning to the US session, stronger services sector activity, labor market, and higher prices could impact the US-Aussie interest rate differential. Falling Fed rate cut bets would widen the gap in favor of the US dollar. A more hawkish Fed policy stance could drag the AUD/USD pair below $0.61500 toward the upper band of the descending channel.
Conversely, softer employment and price trends could narrow the interest rate differential, favoring the Aussie dollar. The AUD/USD could move toward $0.63 and the 50-day EMA on a more dovish Fed rate path.
Additionally, US-China tariff developments remain a risk factor. The Aussie dollar may face selling pressure if the US and China fail to reach a trade agreement.
