Australian Dollar strives to extend its gains after improved Aussie PMI data

• Australian Dollar consolidates after the release of improved PMI figures.
• Australian Manufacturing and Services PMI increased to 50.3 and 47.9, respectively.
• The upbeat Australian share market provides support for the AUD.
• US Dollar demand persists on risk aversion sentiment as escalated geopolitical tension. 
• US forces carried out strikes on Iran-backed Kataib Hezbollah militia group in Iraq.

The Australian Dollar (AUD) attempts to move on an upward trajectory on Wednesday on the back of the improved preliminary Purchasing Managers Index (PMI) from Australia, released on a monthly basis by Judo Bank and S&P Global on Wednesday. However, the US Dollar (USD) maintains stability, holding its positive position from the previous session, despite a decrease in the 2-year United States (US) bond yield.

Australia's PMI data revealed a positive shift in business activity in January across all sectors. The Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December's 46.9. Furthermore, Australian shares continued their upward trajectory, setting a third consecutive record high. The surge was attributed to increased performance in Miners and energy stocks, serving as a favorable factor for the AUD/USD pair.

The US Dollar Index (DXY) remains stable after its recent upswing, as buying interest in the US Dollar persists due to risk aversion sentiment. This trend is likely associated with the escalated geopolitical tensions in the Middle East. The US Secretary of Defense issued a statement confirming that "US military forces carried out essential and proportional strikes on three facilities utilized by the Iranian-backed Kataib Hezbollah militia group and other Iran-affiliated groups in Iraq." These actions were a direct response to a sequence of escalating attacks.

Traders are likely anticipating the release of the S&P Global Purchasing Managers Index data from the United States on Wednesday. This data is expected to provide crucial insights into business activities within the nation, influencing market sentiments about the Federal Reserve’s (Fed) interest rate trajectory.

Money market futures have reduced the likelihood of a rate cut by the Fed in March. However, by May, there is full pricing in of a 25 basis point (bps) cut, and the probability of a more substantial 50 bps cut stands at 50%.

Daily Digest Market Movers: Australian Dollar improves on positive PMI data

• Australia’s Westpac Leading Index (MoM) declined by 0.03% in December against November’s growth of 0.07%.
• National Australia Bank's Business Conditions inched down to the reading of 7 in December from 9 prior.
• National Australia Bank's Business Confidence improves to -1 from the previous figure of -9.
• Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
• The Chair of Australia's sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA's target band.
• The People's Bank of China keeps its Loan Prime Rate (LPR) steady for both the one-year and five-year terms. The rate remains at 3.45% for the one year and 4.20% for the five years.
• US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%.
• The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.

Technical Analysis: Australian Dollar hovers below the psychological level at 0.6600

The Australian Dollar trades around 0.6580 on Wednesday, with immediate resistance noted at the psychological level of 0.6600 aligned with the nine-day Exponential Moving Average (EMA) at 0.6603 before the 23.6% Fibonacci retracement level at 0.6606. A firm breakthrough above the resistance zone could help the pair approach the major barrier at 0.6650 followed by the 38.2% Fibonacci retracement at 0.6657. On the downside, the AUD/USD pair could revisit the weekly low at 0.6551 aligned with the major level at 0.6550. A break below the latter could push the pair to retest the monthly low at 0.6524.

AUD/USD: Daily Chart