AUD/USD extends recovery above 0.6500 on upbeat Caixin manufacturing PMI

• AUD/USD has pushed its recovery above 0.6500 after better than anticipated Caixin manufacturing PMI.
• The release of the Caixin Manufacturing PMI is widely diverged from China’s official Manufacturing PMI data.
• Higher expectations for one more interest rate hike from the Fed could keep the USD index in good shape.

The AUD/USD pair has attempted a recovery move as the IHS Markit has reported upbeat Caixin Manufacturing PMI (May) data. The economic data has landed at 50.9, higher than the consensus and the prior release of 49.5. A figure above 50.0 bifurcates expansion and contraction phases and Chinese factory activities have landed in expansionary territory.

The release of the Caixin Manufacturing PMI is widely diverged from China’s official Manufacturing PMI data. On Wednesday, China’s National Bureau of Statistics (NBS) reported Manufacturing PMI at 48.8, lower than the estimates of 49.4 and the former release of 49.2.

Investors should note that Australia is the leading trading partner of China and higher Chinese factory activity data supports the Australian Dollar.

The Australian Dollar witnessed a sell-off on Wednesday despite posting higher-than-anticipated inflation data. The monthly Australian Consumer Price Index (CPI) soared to 6.8% vs. estimates of 6.4% and the former release of 6.3%. A rebound in Australian inflationary pressures might force the Reserve Bank of Australia (RBA) to announce one more interest rate hike by 25 basis points (bps) in June and push the Official Cash Rate (OCR) above 4%.

Meanwhile, S&P500 futures have surrendered their entire losses posted in early Asia. The risk profile has turned depressed as investors are shifting their focus back to the United States Employment data post clearance of the US debt-ceiling bill in Congress.

Going forward, US Nonfarm Payrolls (NFP) data (May) will keep investors busy. As per the preliminary report, fresh 190K payrolls were added in the labor market in May, lower than the additions of 253K made in April. The Unemployment Rate increased to 3.5% vs. the former release of 3.4%. Annual Average Hourly Earnings were seen steady at 4.4%.

The US Dollar Index (DXY) has sensed selling pressure while extending its recovery above 104.30. Higher expectations for one more interest rate hike from the Federal Reserve (Fed) could keep the USD index in good shape.