AUD/USD slips as strong US PMI data offsets fiscal jitters
The Australian dollar (AUD) came under pressure again on Thursday as the US dollar (USD) found its footing, risk appetite faded and the broader market tilted defensively. The strong rally in the US dollar index (DXY) weighed on the Australian dollar, pushing AUD/USD down to 0.6415, the key support level in recent issues. At the time of writing, the pair is trading around 0.6418, hovering just above the intraday lows, as sellers test their resolve for recent support.
Dollar supported by strong data, but long-term risks loom
The Australian dollar's pullback reflects different policy trajectories and economic signals. Sentiment was still affected by the Reserve Bank of Australia (RBA)'s recent 25 basis point rate cut, which lowered the cash rate to 3.85 per cent, as no major Australian data was released on Thursday. Governor Michelle Block (Michele Bullock) has maintained a cautious tone, citing slowing inflation and global trade uncertainty.
The dollar, by contrast, found support after a series of upbeat data releases. Initial jobless claims for the week ending May 18 were 227,000, below the 230000 consensus, cementing a still resilient labor market. Meanwhile, the S & P Global US manufacturing PMI (May, preliminary) and services PMI (May, preliminary) both traded 52.3 below the 50 mark separating contraction from expansion. The data were surprising, indicating a pick-up in both factory and service sector activity.
However, sentiment around the Greenback remains mixed due to broader fiscal concerns. Investors are still digesting President Donald Trump's "one big beautiful bill," which passed the House earlier this week. The bill proposes extending the 2017 tax cuts while reducing spending on key benefit programs. The legislation is expected to add more than $3.8 trillion to the federal deficit over the next decade, although some see potential in the near-term stimulus. This has heightened concerns about the sustainability of US debt and the quality of credit, especially after the recent downgrade. These structural concerns are limiting the upside of the dollar, even in the face of positive recent data.
AUD/USD stalls under resistance, eyes below 0.6415
Technically, the AUD/USD is clinging to the fragile support zone near the 0.6415, and the recent price action shows a clear lack of conviction on the part of the bulls.
The pair could not convincingly break the 0.6420-6450 range, which is in line with the 20-day simple moving average (SMA) and the mid-point of the September-April decline of 0.6428 points.
If sellers manage to push below the 0.6415, it could open the door to 0.6338 the November low and possibly reach the 0.6307 level, which marks a 38.2 percent bounce from October to April.
The Relative Strength Index (RSI) hovered around 51.77, slightly above the neutral level of 50.
