AUD/USD remains resilient despite facing USD strength

• AUD/USD holds to its gains and remains above 0.6600 on overall risk sentiment.
• US manufacturing activity improved, though higher prices justify the need for further Fed tightening.
• Weaker than expected, China’s data capped the AUD/USD’s rally towards 0.6700.

The Australian Dollar (AUD) clings to some gains after hitting a daily high of 0.6668, though renewed US Dollar (USD) strength spurred a dip toward current exchange rates. That was sparked by the latest week’s inflation data, alongside an improvement in manufacturing activity. At the time of writing, the AUD/USD is trading at 0.6635.

AUD/USD oscillates around 0.6620s as traders brace for the Federal Reserve’s decision

Wall Street portrays an upbeat market sentiment after JP Morgan acquired the failed lender First Republic Bank. Market participants were bracing for another hike by the US Federal Reserve (Fed) and weighed on the AUD/USD’s pair.

A report by the Institute for Supply Management (ISM) revealed the Manufacturing PMI for April at 47.1, improving from March’s 46.3 but missed the chance to enter the expansionary territory. One of the subcomponents of the ISM’s poll, the Prices Index, surprisingly jumped to 53.2 from 49, indicating that inflation is picking up amongst US factories.

In the meantime, the US Dollar Index (DXY), a gauge for the buck’s value vs. a basket of six currencies, advances 0.43%, up at 102.112, a headwind for the AUD/USD pair. US Treasury bond yields climbed and underpinned the buck, as shown by the DXY

Aside from this, the Fed’s odds for a 25 bps rate hike stand at 88.9%, as shown by the CME Fed Watch Tool.

Aside from this, over the weekend, data from China increased concerns about its growth, with the National Bureau of Statistics (NBS) revealing that the Manufacturing PMI in April slowed down from 51.9 to 49.2. The Non- Manufacturing PMI rose to 56.4, down from 58.2 in March, while the composite Index stood at 54.4, from 57.

“A lack of market demand and the high-base effect from the quick manufacturing recovery in the first quarter” was among the factors that led to the contraction in April, said senior NBS statistician Zhao Qinghe.

Even though China’s outlook looks gloomy, the AUD/USD held to its earlier gains. Data from Australia witnessed the Judo Bank Manufacturing PMI rising to 48, below the prior’s month 49.1, while the TD-MI inflation gauge rose by 0.2%, below the latest month’s 0.3%.

In further data, Australia’s Labor government will reveal a vast improvement in the country’s budget bottom line next week, which has been helped by tax windfalls and job gains. Nevertheless, Treasurer Jim Chalmers has warned that fiscal challenges persist, and the government aims to be responsible with spending to avoid inflation, particularly since the Reserve Bank of Australia is aggressively lifting interest rates.

AUD/USD Technical Levels