The Australian Dollar (AUD) experienced a slight boost against the US Dollar (USD), as China’s official Purchasing Managers’ Index (PMI) results for March exceeded expectations.
The PMI Manufacturing data reported a value of 51.9, surpassing the anticipated 51.5, while the PMI Services data revealed an impressive 58.2, compared to the predicted 54.3.
China’s economic outlook also led to an increase in the composite PMI, which climbed to 57.0 compared to the previous month’s 56.4.
This data signals a strong recovery and provides robust support for the AUD/USD pair. As a result, traders might witness the currency pair’s performance venture towards a staunch resistance in the forex market.
AUD-USD Daily Chart
The market has been buzzing with activity as bears gather near a broken structure point, marking it as their new territory.
This point has been resisting all attempts to break it for a while now, resulting in the creation of a bearish pennant on the daily trading chart. Traders are now eagerly anticipating an explosive breakout from the tightly coiled market conditions, with eyes set on a potential 0.65 increase.
Each month, the China Federation of Logistics and Purchasing (CFLP) unveils the highly anticipated manufacturing PMI report. As a leading indicator of economic health, this report sheds light on the vitality of China’s all-important manufacturing sector, which is often considered the backbone of the country’s economy.
What’s more, this report is released ahead of the Caixin Manufacturing PMI, making it an even more telling sign of what’s to come.
Investors across a range of asset classes eagerly await this data, as China’s influence on the global economy is hard to overstate.
Likewise, the China Federation of Logistics and Purchasing (CFLP) unveils their non-manufacturing PMI, a crucial measure of the country’s service sector performance.
It’s no secret that the Chinese economy’s size is nothing to scoff at, thereby making the gauge highly influential in the global FX market. The gauge acts as a beacon of hope: any increase in activity within the Chinese service sector is an indicator of positive economic growth, whereas a decline suggests otherwise.
April Australia’s RBA Expectations
The Reserve Bank of Australia is expected to maintain its current cash rate in April, with the possibility of rate cuts being pushed back.
This decision may have been influenced by softer-than-expected Australian CPI figures in February. Meanwhile, Chinese data seems to have little impact on the RBA’s outlook.
US CORE PCE DATA RELEASE- EXPECTATIONS AND IMPACT
As we approach the next 24 hours, all eyes are focused on US Core PCE data. The Fed’s favoured inflation measure is predicted to decline to 5.1% year-over-year from 5.4% in the past.
However, an unexpected rise may weaken the chances of further Fed rate cuts, leading to a potential reversal in the US Dollar’s fortunes.
As March comes to a close, the US Dollar trended downwards with the DXY Index slipping by 0.46%, resulting in a 2.6% dip for the month – the worst it has done since November.
However, this didn’t stop Wall Street’s Nasdaq 100 from soaring by 0.9%, with the S&P 500 and Dow Jones increasing by 0.57% and 0.43%, respectively.
Such a shift in risk appetite allowed the haven-linked US Dollar to lose ground. Moreover, to add to the upbeat mood of the day, the VIX market ‘fear gauge’ plummeted, presenting a 12.5% drop this week.
The Dollar Technical Analysis
Despite little indication from the Federal Reserve that a change in policy was imminent, the dollar still experienced a puzzling drop in value.
Although several Fed officials expressed their outlook on interest rates over the past day, with Thomas Barkin from the Richmond Fed supporting a hike in rates by 25 basis points and Susan Collins from the Boston Fed stating rates should remain high to tackle inflation, it seems that traders have been taking matters into their own hands since Silicon Valley Bank’s recent collapse.
Consequently, rate cut bets have slowly been unravelling, resulting in an uptick in the 2-year Treasury yield and a further decrease in Fed rate cut expectations.
The US Dollar’s future is uncertain, but there’s hope for a turnaround as the gap widens between Federal Reserve policy and USD bets. Will the greenback make a comeback? All eyes are on the PCE data set to be released at 12:30 GMT, as this is the Fed’s preferred inflation gauge.
If inflation rates continue to stay high, markets may shift their focus back to a hawkish Fed, reducing rate-cut bets and giving the USD a boost. Keep your eyes peeled, the USD could surprise us all yet.
The DXY is showing a worrisome downtrend on its daily chart, following the emergence of a Bear Flag. Signs of bearishness are becoming stronger by the day. However, the bigger picture for the downside indicates a target range of 100.82 – 101.29, which was formed at the beginning of the year.
Once this threshold is broken, it could deepen the short-term bearish bias. Anticipated pushbacks are likely to materialize at the 100-day Simple Moving Average. Consequently, a more profound observation of the situation is needed to see how the situation unfolds in the near future.
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