Anna 
Despite positive preliminary readings in the Australian Purchasing Managers Index (PMI) released by Judo Bank and S&P Global, the Australian dollar relinquished its gains on Wednesday. However, the currency managed to maintain its stability, retaining the advances made in the previous session. This occurred even as U.S. 2-year Treasury yields experienced a decline.
In January, Australia’s PMI data revealed favorable changes in business activity across all sectors. The manufacturing PMI exhibited improvement by rising to 50.3 from 47.6, indicating positive developments in the manufacturing sector. Additionally, the services PMI witnessed an increase, reaching 47.9 from 47.1. The composite purchasing managers index showed a rise to 48.1 from 46.9 in December. Australian shares continued their upward trajectory, reaching a record high for the third consecutive time. Robust performances from mining and energy stocks contributed to the positive momentum for the AUD/USD pair.
On the global front, the U.S. dollar index (DXY) maintained stability following recent gains, as risk aversion prompted sustained buying interest in the greenback. This trend is attributed to increasing geopolitical tensions in the Middle East. The U.S. Secretary of Defense confirmed necessary and proportionate strikes against facilities in Iraq used by Iranian-backed militias, responding to a series of escalating attacks.
Traders are anticipated to closely monitor Wednesday’s release of S&P Global Purchasing Managers Index data in the U.S. This data is expected to offer crucial insights into domestic business activity, influencing the market’s perception of the Federal Reserve’s interest rate trajectory.
In the money markets, the odds of a Federal Reserve rate cut in March diminished, but by May, the likelihood of a 25 basis point rate cut is considered certain. Additionally, there is a 50% chance of a larger 50 basis point cut in May, reflecting the dynamic expectations in the financial markets.
