Following poor Chinese PMI data, where manufacturing fell to 49.2 in July, falling short of forecasts, AUD/USD is still muted. The Australian Dollar is under pressure as weak Q2 inflation has effectively eliminated the possibility of an August RBA rate hike. The US Dollar appreciates even as risk aversion diminishes, influenced by recent diplomatic developments. AUD/USD inched lower after registering over 1% gains in the previous day, trading around 0.7020 during the Asian hours on Friday. After the poor Chinese Purchasing Managers’ Index data was released, the pair is still muted.
China’s NBS Manufacturing PMI declined to 49.2 in July, slipping into contraction territory from the previous 50.3 and falling short of market expectations of 50.0. Similarly, the Non-Manufacturing PMI declined to 49.0, falling short of the anticipated 50.0 reading, highlighting persistent weakness in Australia’s largest trading partner. Analysts at Deutsche Bank emphasise that the most recent data indicates a continued reduction in price pressures, with “annual inflation moderated from +4.0% to +3.8% yoy.” They observe that this incremental slowdown in headline inflation reinforces the perception that underlying price momentum is gradually cooling, which helps to temper expectations for further near-term tightening by the RBA and contributes to a softer tone in the Aussie Dollar.
The US Dollar remains resilient in the face of a reduction in global risk aversion, attributed to favourable diplomatic advancements. Tensions in the Middle East appear to be easing as discussions between the US and Iran advance towards re-establishing stability in the Strait of Hormuz. Further enhancing market sentiment, US President Donald Trump announced a historic agreement focused on the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a deal reportedly validated by senior Hamas officials.
Strategists emphasise that the US Federal Reserve “left interest rates unchanged for a fifth consecutive meeting, in line with expectations,” while noting that the “9-3 vote revealed a lively debate within the FOMC,” highlighting the degree of internal divergence regarding the suitable policy trajectory.