Aussie Holds, China PMI Strengthens
The Australian dollar (AUD) continued its strengthening on Wednesday, holding firm after rising more than 1% in the previous session. Market sentiment was supported by improving economic activity data, while the US dollar weakened for the second consecutive session.
The first boost came from China. The January Services PMI rose to 52.3 from 52.0 (December), exceeding expectations of 51.8. As China is Australia's main trading partner, improving data there tends to quickly lift sentiment in the AUD.
Domestically, S&P Global data showed a stronger surge in activity. The Australian Composite PMI in January rose to 55.7 from 51.0, marking the strongest expansion in 45 months. The Services PMI also rose to 56.3 from 51.1, the highest level since February 2022, confirming the continued consistent expansion of the services sector.
On the policy front, the Reserve Bank of Australia recently raised interest rates by 25 bps to 3.85%. The central bank highlighted stronger-than-expected growth and persistently stubborn inflation, leading the market to price in around an 80% chance of another hike in May, with expectations of around 40 basis points of further tightening throughout the year.
Governor Michele Bullock emphasized that inflationary pressures remain too strong and that the process of returning to target could take longer. She also emphasized a data-dependent approach without making any "directional promises" going forward—leading the market focus to the next data release, as that will determine whether the AUD continues to strengthen or begins to run out of steam. (asd)
Source: Newsmaker.id
