In January, the Judo Bank Services PMI increased from 47.1 to 49.1, surpassing the preliminary reading of 47.9. This indicates a slight improvement in the Australian economy, which relies heavily on the services sector accounting for over 60% of the country’s GDP. However, the narrowing of the Australian trade surplus from A$11.437 billion to A$10.959 billion in December had a more significant impact on the market. Economists had forecasted the trade surplus to narrow to A$11.000 billion, so the actual data fell short of expectations. The trade data revealed that while exports increased by 1.8% (A$847 million) in December, imports jumped by a more significant 4.8% (A$1,652 million). This suggests a greater demand for foreign goods and services and a potential drag on the Australian economy.
With China being Australia’s largest trading partner, investors must also consider service sector data from China. Economists expect the Caixin Services PMI to remain unchanged at 52.9 in January. A better-than-expected performance in the Chinese service sector could drive buyer demand for the Australian dollar, as it would signal a pickup in demand for Australian exports. As Australia has a trade-to-GDP ratio of over 50% and 20% of its workforce in trade-related jobs, an increase in demand would positively impact the Australian economy and the value of the Aussie dollar.
Another factor influencing the AUD/USD exchange rate is the US Non-Manufacturing PMI numbers for January. Economists forecast an increase in the PMI from 50.6 to 52.0, indicating potential growth in the US services sector. However, it is essential to delve into the sub-components, such as prices and employment, as they can significantly impact market sentiment. The services sector accounts for over 70% of the US economy, so any sign of inflationary pressures or strong wage growth could affect expectations of a March Federal Reserve (Fed) rate cut.
Investors should also closely monitor speeches by Federal Open Market Committee (FOMC) members, such as Raphael Bostic, scheduled to speak on Monday. Their comments on topics like inflation and interest rates can move the market and influence the AUD/USD exchange rate. The market will be particularly attentive to any hints or indications from the Fed regarding its future monetary policy stance.
From a technical perspective, the AUD/USD exchange rate remains bearish. The currency pair is trading below both the 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bearish price trend. A potential support level lies at $0.64900, and a drop below this level may bring the $0.63854 support level into view. The 14-period Daily Relative Strength Index (RSI) reading of 31.80 suggests that the AUD/USD exchange rate has room to fall further before entering oversold territory.
On the upside, if the AUD/USD manages to break above the 200-day EMA, which currently acts as a resistance level, it could test the 50-day EMA and the $0.66162 resistance level. However, selling pressure is expected to intensify at this resistance level, as it coincides with the 50-day EMA.
To summarize, various factors, such as Australian trade data, Chinese service sector performance, US economic indicators, and Fed commentary, impact the AUD/USD exchange rate. Weaker Australian trade terms, increased US service sector activity, and a less hawkish Reserve Bank of Australia (RBA) may favor the US dollar in terms of monetary policy divergence. From a technical standpoint, the AUD/USD is currently in a bearish trend, trading below key EMAs. However, market participants should remain vigilant and stay updated on new data releases and central bank communications, as they can significantly influence the short-term and long-term outlook for the AUD/USD exchange rate.
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