The AUD/USD dipped 0.50% to just under 0.6420. The decline comes right before the US preliminary S&P Global Manufacturing and Services Purchasing Managers’ Index (PMI) for May. This release will be a critical opportunity to understand our economic landscape. At the same time, Australia’s economy has proven resilient but not vigorous, especially in its services dominated economy.
Recent data indicates that Australia’s manufacturing sector has stayed healthy. To cap off the positive manufacturing data, S&P Global’s Manufacturing PMI remained unchanged at 51.7 for May. This image indicates how stable the manufacturing sector has been. That’s a sign that production levels are truly firming up despite the greater economic headwinds. Now the services sector seems to be cooling. Meanwhile, the Services PMI has continued to cool, coming in at 50.5, down from 51 in April. This drop is a sign of possible softening in consumer demand and in activities related to services, in general, leading to worries about the nation’s economic path overall.
The RBA has responded to these mixed signals. They took the initiative and cut the OCR target by 25bp in advance. The new OCR target is currently 3.85%, down from a height of 4.10%. The RBA named moderating inflation and a more even risk profile as the two biggest realizations behind this change. By cutting interest rates, the RBA hopes to make borrowing and spending more attractive, which in turn will help foster economic growth.
Through the desperate implementation of these efforts, the lack of strong momentum in the Australian economy is still pronounced. The AUD is down -0.14% today, falling against most of its major counterparts. It’s down -0.11% against the euro, stressing the effects of broader market pressures. The AUD has maintained a stable position with a -0.00% change against another currency, indicating mixed performance across different foreign exchange markets.
As investors await further data from the US, they are closely monitoring the implications of the RBA’s rate cut and Australia’s economic indicators. US Dollar Index (DXY) value is building strength again as the market readies for the next PMI data to drop in. Perhaps most importantly, this step shows that market participants are preparing for a strong shift in sentiment.