Aussie Hit by Dual Pressures
The Australian dollar faced downward pressure against the US dollar during Friday's US trading session (July 31). The AUD/USD pair traded around 0.7020, as weak economic activity data from China and hawkish comments from Federal Reserve officials dampened demand for the Australian currency.
China's NBS Manufacturing PMI fell to 49.2 in July from 50.3, missing the market forecast of 50.0. A reading below 50 indicates a renewed contraction in the manufacturing sector.
China's non-manufacturing activity also weakened to 49.0, down from 50.2 and below expectations. These figures heightened concerns regarding slowing demand in China, Australia's largest trading partner.
Domestically, inflationary pressure in Australia remained strong. The Producer Price Index (PPI) rose 3.6% year-on-year in the second quarter, exceeding the previous increase of 3.0%. However, this data was insufficient to offset negative sentiment stemming from China and the strengthening US dollar.
The US dollar found support following hawkish remarks from Dallas Fed President Lorie Logan. Logan assessed that monetary policy was not yet sufficiently restrictive to the economy and that inflation had not yet moved convincingly toward the 2% target. She also expressed a preference for a 25-basis-point interest rate hike.
Newsmaker Analysis: AUD/USD remains at risk of downward pressure as long as it stays below the 0.7050–0.7070 range. China's economic weakness and the prospect of Fed tightening could drive the pair to retest the 0.7000 level. However, high inflationary pressure in Australia could limit the decline if the market begins to anticipate tighter RBA policy. (arl)
Source: Newsmaker.id
