Anna 
The Australian dollar (AUD) experienced a second consecutive day of decline on Thursday, primarily influenced by positive Purchasing Managers’ Index (PMI) data from the United States. The robust data from the US reduced expectations of a Federal Reserve rate cut in March, contributing to the depreciation of the Australian dollar against the US dollar.
Despite improved preliminary Australian PMI data released on Wednesday, the AUD faced downward pressure. Announcements from the Reserve Bank of Australia (RBA) revealed businesses’ expectations of slowing price growth over the past six months. Prices were noted to remain, on average, above the RBA’s inflation target range of 2.0-3.0%. The RBA communicated that slowing demand growth and increased competition are anticipated factors for a further slowdown in corporate price growth in the upcoming quarters.
Reports from Chinese financial media indicated a potential interest rate cut by the People’s Bank of China on the medium-term lending facility (MLF) in the current quarter. The recent reduction of the deposit reserve ratio (RRR) by 50 basis points starting from February 5 was part of the central bank’s strategy to inject liquidity into the Chinese economy. This move is expected to release approximately 1 trillion yuan of additional funds, providing liquidity to support economic activity and potentially easing financial conditions. Given the close trade relationship between Australia and China, such measures are likely to support the Australian dollar.
While the US dollar index struggled to recover from recent losses, challenges persist due to risk market sentiment ahead of the Federal Reserve’s interest rate decision on January 31. Investors are closely watching preliminary US gross domestic product (GDP) annualized data scheduled for Thursday, expecting a growth rate of 2.0% in the fourth quarter compared to the previous figure of 4.9%. The data will offer insights into overall economic performance and may influence market expectations for the Fed’s monetary policy stance.
