AUD/USD refreshes day low below 0.7070 despite upbeat Caixin Services PMI

• AUD/USD has dropped to near 0.7064 as the market mood has soured.
• The upbeat Caixin Services PMI at 52.9 failed to provide support to the Australian Dollar.
• An interest rate hike of 25 bps is expected from the RBA next week.

The AUD/USD pair has printed a fresh day's low at 0.7064 despite the IHS Markit has reported upbeat Caixin Manufacturing PMI (Jan) data. The economic data has landed at 52.9, significantly higher than the consensus of 47.3 and the prior release of 48.0. China’s Services PMI has remained upbeat despite households being busy celebrating the Lunar New Year festival in January’s last week.

It is worth noting that Australia is a leading trading partner of China and Services PMI the Australian Dollar.

For further action, the Australian Dollar is likely to dance to the tune of the interest rate decision by the Reserve Bank of Australia (RBA), which is scheduled for Tuesday. Considering the surprise jump in the Australian Consumer Price Index (CPI) to 7.8% in the fourth quarter of CY2022, RBA Governor Philip Lowe might continue its hawkish stance on interest rates.

Analyst at Deutsche Bank Australia sees the RBA likely to drive the Official Cash Rate (OCR) to 4.1%, citing the most recent inflation update of a 7.8% increase in the CPI, which was slightly higher than expected. “While the RBA will likely move more slowly in 2023 than it did in 2022, we now expect four more 25 basis point hikes this year: 25 basis points in each of February and March, and 25 basis points each at the May and August meetings” as reported by Forbes Advisor.

Meanwhile, investors have turned risk-averse amid soaring anxiety ahead of the release of the United States Nonfarm Payrolls (NFP) data. Risk-perceived assets like S&P500 futures are facing immense pressure. The US Dollar Index (DXY) has recovered to near 101.50 after a corrective move and is likely to remain in the grip of bulls ahead. The 10-year US Treasury yields have dropped further to near 3.38% on expectations that the Federal Reserve (Fed) might consider a pause in its policy tightening spell.