Ella 
The Australian dollar (AUD) gave up recent gains on Wednesday despite improvements in preliminary readings of the monthly Australian Purchasing Managers Index (PMI) from Judo Bank and S&P Global. However, the US dollar (USD) remained stable, maintaining the positive momentum from the previous session despite a decline in the two-year US (US) bond yield.
Australia’s Purchasing Managers Index (PMI) data showed positive changes in business activity across all sectors in January. The manufacturing PMI rose to 50.3 from 47.6, showing improvement in the manufacturing sector. The services PMI also rose, rising to 47.9 from 47.1. The composite purchasing managers index rose to 48.1 from 46.9 in December. Elsewhere, Australian shares continued their gains, hitting a record high for the third consecutive time. The performance of mining and energy stocks sent share prices soaring, acting as a tailwind for AUD/USD.
The U.S. dollar index (DXY) held steady after recent gains as risk aversion led to continued buying interest in the greenback. This trend may be related to rising geopolitical tensions in the Middle East. The U.S. Secretary of Defense issued a statement confirming that “U.S. forces conducted necessary and proportionate strikes against three facilities in Iraq used by the Iranian-backed Khatib Hezbollah militia and other Iranian-affiliated groups.” These actions were a direct response to a series of escalating attacks.
Traders may be looking ahead to Wednesday’s U.S. release of S&P Global Purchasing Managers Index data. The data is expected to provide important information on domestic business activity in the United States and influence the market’s view of the trajectory of the Federal Reserve’s interest rates.
Money market futures reduced the odds of a rate cut by the Federal Reserve in March. However, by May, the likelihood of a 25 basis point (bps) rate cut is fully certain, while the chance of a larger 50 basis point cut is 50%.
