Australian Dollar depreciates following Trade Balance, China Manufacturing PMI

• The Australian Dollar declines after the release of key economic data on Thursday.
• ABS reported a trade surplus of 5,589 million for June, against the expected 5,000 million and prior of 5,773 million.
• China’s Manufacturing PMI came in at 49.8 readings for July, below the expected 51.5 and prior 51.8 readings.

The Australian Dollar (AUD) inches higher against the US Dollar (USD) following the release of better-than-expected Trade Balance data on Thursday. The Australian Bureau of Statistics reported a trade surplus of 5,589 million for June, surpassing the anticipated 5,000 million but still below the previous reading of 5,773 million.

The latest inflation report released on Wednesday has reduced expectations that the Reserve Bank of Australia (RBA) will implement another rate hike at its policy meeting next week. Economists have warned that additional interest rate increases could jeopardize Australia’s economic recovery. Markets now see approximately a 50% chance of an RBA rate cut in November, much earlier than previous forecasts for a move in April next year. These developments are putting pressure on the Australian Dollar.

China’s Caixin Manufacturing Purchasing Managers Index (PMI) posted a reading of 49.8 for July, falling short of the expected reading of 51.5 and the previous reading of 51.8. Since both nations are close trade partners, changes in the Chinese economy can significantly impact the Australian market.

The downside of the AUD/USD pair may be limited, as the US Dollar faces challenges following the Federal Reserve's decision to keep rates unchanged in the 5.25%-5.50% range at its July meeting on Wednesday. Traders will look for further direction from the US economic data including ISM Manufacturing PMI and weekly Initial Jobless Claims, which are scheduled for release later on Thursday.

Daily Digest Market Movers: Australian Dollar declines after key economic data

• The Judo Bank Australia Manufacturing PMI edged up to 47.5 in July 2024 from 47.2 in June, signaling a sixth consecutive month of deterioration in manufacturing sector conditions, though at a slightly slower pace.
• Federal Reserve Chair Jerome Powell stated during a press conference that a rate cut in September is "on the table." Powell added that the central bank will closely monitor the labor market and remain vigilant for signs of a potential sharp downturn, per Reuters.
• The Australian Bureau of Statistics (ABS) reported on Wednesday that the Monthly CPI rose by 3.8% in the year to June, easing from the 4% posted in May. The quarterly CPI rose 1% QoQ and up 3.8% YoY in the second quarter of the year. The RBA Trimmed Mean CPI, the central bank’s preferred gauge, rose by 3.9% YoY in Q2, against the expected and previous reading of 4.0%.
• China's NBS Manufacturing PMI posted a reading of 49.4 for July, slightly above the expected 49.3 but below the prior 49.5. Meanwhile, the Non-Manufacturing PMI came in at 50.2 as expected.
• Australia's Building Permits (MoM) fell by 6.5% in June, exceeding market expectations of a 3.0% decline. This follows a 5.7% increase in May. On a year-over-year basis, Building Permits declined by 3.7%, compared to the previous year's decline of 8.5%.
• National Australia Bank (NAB) anticipates that the Reserve Bank of Australia's (RBA) cash rate will remain stable at 4.35% until May 2025, according to a recent NAB Economics outlook. Looking ahead, the NAB Economics team predicts a decline to 3.6% by December 2025, with further decreases expected in 2026.
• In a media release on Monday, the Australian Prudential Regulation Authority (APRA) warned that arrears rates are increasing slowly. Following their latest quarterly assessment of domestic and international economic conditions, APRA announced that they will keep macroprudential policy settings on hold. These comments reflect their ongoing evaluation of both domestic and global economic environments.

Technical Analysis: Australian Dollar trades around 0.6550

The Australian Dollar trades around 0.6540 on Thursday. The daily chart analysis shows that the AUD/USD pair consolidates within a descending channel, indicating a bearish bias. The 14-day Relative Strength Index (RSI) is near the oversold 30 level, suggesting a potential upward correction might be imminent.

Immediate support for the AUD/USD pair is around the lower boundary of the descending channel at 0.6500. A break below this level could pressure the pair to test the throwback support at approximately 0.6470.

On the upside, the upper boundary of the descending channel at 0.6555 serves as the immediate resistance, followed by the “throwback support turned resistance” at 0.6575 and the nine-day Exponential Moving Average (EMA) at 0.6581. A break above this resistance could drive the AUD/USD pair toward a six-month high of 0.6798.

AUD/USD: Daily Chart