AUD/USD strengthens above 0.6750, China Caixin Purchasing Managers Index is about to be released
The exchange rate for 0.677 Australian Dollars (AUD) to US Dollars (USD) is 0.46 USD.
AUD/USD is slightly firmer to around 0.6770 in early trade on Monday, after retracing from Friday's high of 0.6815. However, a stronger U.S. dollar following the release of the U.S. PCE price index for July could drag the AUD lower against the U.S. dollar. U.S. non-farm payrolls (NFP) for August released on Friday will be the focus of market attention and may provide some hints on the extent and pace of interest rate cuts by the U.S. Federal Reserve.
Data released by the U.S. Bureau of Economic Analysis last Friday showed that the overall PCE price index in the United States increased by 2.5% at an annual rate in July, compared with the previous value of 2.5%, which was lower than the expected 2.6%. Excluding volatile food and energy prices, the core PCE price index in July was at an annual rate of 2.6%, compared with the previous value of 2.6% and lower than the expected value of 2.7%.
The U.S. PCE price index may not be dovish enough to convince the Federal Reserve to immediately cut interest rates by 50 basis points, thus boosting the dollar. The Chicago Mercantile Exchange's FedWatch tool shows that after the report was released, the market expected that the probability of the Fed cutting interest rates by 25 basis points in September was close to 70%, while the probability of cutting interest rates by 50 basis points was 30%.
On the other hand, monetary policy differences between the dovish Federal Reserve (Fed) and the hawkish Reserve Bank of Australia (RBA) may limit the downside for both currencies in the short term. Andrew Hauser, deputy governor of the Federal Reserve Bank of Australia, said on Friday that the Federal Reserve Bank of Australia will not follow the Federal Reserve in cutting interest rates this year because inflation remains high and the cash rate of 4.35% is by global standards. It doesn’t look too high.
In addition, China’s National Bureau of Statistics Purchasing Managers’ Index (PMI) for August showed a mixed picture. China's manufacturing purchasing managers' index fell to 49.1 in August from the previous value of 49.54, which was lower than market expectations of 49.5. At the same time, the non-manufacturing purchasing managers' index in August was 50.3, higher than the expected 50.0 and the previous value was 50.2.
Investors will turn their attention to the upcoming release of China's Caixin Manufacturing Purchasing Managers Index for August. Since China is Australia's main trading partner, if the result is lower than expected, it may drag down the Australian dollar, the currency that represents China.
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