AUD/USD eases towards 0.6600 as mixed Aussie PMIs join US debt ceiling hopes, hawkish Fed bets

• AUD/USD reverses from intraday high to tease sellers after an inactive Monday.
• Australia’s preliminary S&P Global PMIs for May came in mixed.
• Market sentiment dwindles amid ongoing US debt ceiling negotiations, hawkish Fed concerns and China-linked news.
• US PMIs, risk catalysts will be the key to watch for clear directions.

AUD/USD fades bounce the previous day’s bounce off 0.6630 as it bears the burden of sluggish Australia activity data on early Tuesday. That said, the risk barometer pair marked an unimpressive performance on Monday amid mixed clues and sluggish markets. However, the quote is likely to witness further volatility as the economic calendar becomes active.

Australia’s first readings of the S&P Global Manufacturing PMI for May reprints 48.0 figures versus 47.3 expected whereas the Services PMI eased to 51.8 from 53.7 previous readings and 48.9 market forecasts. With this, the Composite PMI came in at 51.2 compared to 53.0 marked in April.

Elsewhere, the markets remain jittery as the US policymakers’ negotiations to seal the debt ceiling deal appear less impressive even as US President Joe Biden said that he believed they will make some progress on the debt ceiling talks. It should be noted that House Speaker Kevin McCarthy said, “We both believe we need to change the trajectory.”

“The Democratic president and the top congressional Republican have struggled to make progress on a deal, as McCarthy pressures the White House to agree to spend cuts in the federal budget that Biden considers ‘extreme,’ and the president pushes new taxes on the wealthy that Republicans reject,” reported Reuters.

On a different page, the Fed policymakers convey hawkish messages and allow the US Dollar, as well as the yields, to remain firmer, which in turn exerts downside pressure on the AUD/USD prices. That said, Minneapolis Federal Reserve President Neel Kashkari favored the rate hike trajectory while citing the fears of the US default and banking crisis, which in turn allowed the US Dollar to remain firmer. On the same line, St. Louis Federal Reserve President James Bullard ruled out the recession concerns on Monday while saying that He sees two more rate hikes this year before reaching the base rate. Furthermore, Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly recently backed the calls for higher rates.

It’s worth observing that jitters surrounding China, Australia’s biggest customer also challenge the AUD/USD pair buyers, even if the latest headlines have been slightly positive. US Official recently mentioned that they’re working directly with China on the Micron issue. Beijing banned chips from US manufacturer Micron, after terming them a security threat, which in turn gave rise to a situation where Washington and Beijing exchanged harsh words. Additionally, the China Securities Journal (CSJ) cited the dragon nation’s sturdy economic transition while the People’s Bank of China (PBoC) defends its status quo, which in turn favors commodity prices, including WTI, due to China’s dominance as the world’s biggest industrial player.

Against this backdrop, Wall Street ended the day mixed but the US Treasury bond yields remained firmer. That said, the US 10-year and two-year Treasury bond yields remain indecisive around the highest levels in 10 weeks after rising for the last seven consecutive days, around 3.72% and 4.32% at the latest.

Having witnessed the initial reaction to the Aussie PMIs, the AUD/USD pair traders should keep their eyes on the US S&P Global PMIs for May and the aforementioned risk catalysts for clear directions.

Also read: US S&P Global PMIs Preview: Dollar set to rise on a slip in the services sector

Technical analysis

Monday’s Doji candlestick joins the AUD/USD pair’s sustained trading below the 21-DMA, close to 0.6675 by the press time, to keep the bears hopeful.