Australian dollar steady after lackluster PMIs

• Australia’s manufacturing and services PMIs ease in August

The Australian dollar is slightly lower on Wednesday. In the European session, AUD/USD is trading at 0.6416, down 0.07%. For a second straight day, the Australian dollar made some headway but then retreated.

There are no tier-1 events out of Australia this week, and not surprisingly, AUD/USD is having a sleepy week. On Wednesday, Australia released the August PMI reports which pointed to a contraction in manufacturing and services (the 50.0 line separates contraction from expansion).

Australia’s manufacturing sector continues to sputter and has declined for six consecutive months. The manufacturing PMI eased to 49.4 in August, down marginally from 49.6 in July. New orders are down which has led to less output, and there’s little room for optimism as there are no signs of global demand picking up. China, Australia’s largest trading partner, is experiencing deflation and a deteriorating economy, which will add to the manufacturing sector’s woes.

The services sector has also been struggling, although Services PMI reeled off three straight months of growth earlier in the year. In August, the PMI fell from 47.9 to 46.7 points. This marks the lowest level in 19 months. The PMI data is further proof of a slowdown in the Australian economy, which will lend support to the Reserve Bank of Australia easing up on interest rate hikes. The tricky task for the central bank is to follow a rate path that will cool the economy and guide it to a soft landing without causing a recession. The RBA took a pause in August and the futures markets are widely expecting a second pause at the September meeting.

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AUD/USD Technical

• AUD/USD tested resistance at 0.6431 earlier. Next, there is resistance at 0.6496
• There is support at 0.6339 and 0.6274

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