Ella 
In Asia on Friday, AUD/USD failed to build on the previous day’s rebound from around 0.6385 (or a one-week low) and continued to move higher, trading between slight gains/slight losses. AUD/USD is currently trading just above the 0.6400 mark, although the fundamental backdrop supports the prospect of further AUD/USD depreciation in the near term.
A survey showed that Australian private sector business activity returned to growth in September after two consecutive months of contraction, providing some support for the AUD/USD pair. The Judo Bank Australia Composite Purchasing Managers’ Index rose to 50.2 in the reporting month from 48.0 in August. Elsewhere, Australia’s services PMI climbed to a four-month high of 50.5 in September from 47.8 in August. However, the manufacturing PMI remained in contractionary territory, falling to 48.2 from 49.6 last month, preventing bulls from maintaining aggressive bullish bets on the Australian dollar.
In addition, the market’s underlying bullish sentiment towards the US dollar (USD), supported by the Federal Reserve’s hawkish outlook, also suppressed the apparent rise in AUD/USD. The Federal Reserve on Wednesday decided to keep interest rates unchanged at a 22-year high of 5.25%-5.50%, as expected. In an accompanying policy statement, the Fed flagged the possibility of at least one more interest rate hike before the end of the year amid persistently high inflation. Additionally, policymakers believe the Fed’s benchmark interest rate will reach 5.1% next year, suggesting just two rate cuts in 2024, compared with the previous expectation of four rate cuts.
That outlook, along with an unexpected drop in U.S. jobless claims last week, continued to push U.S. bond yields higher. Indeed, the rate-sensitive two-year Treasury yield hit a 17-year high, while the 10-year Treasury yield climbed to its highest since November 2007, continuing to boost the dollar. At the same time, the Federal Reserve’s statement that it “will maintain high interest rates for a longer period of time” has heightened market concerns about economic headwinds caused by rapidly rising borrowing costs. This in turn affected investor sentiment, further boosting the safe-haven currency US dollar and suppressing the risk asset AUD/USD.
Traders are now looking ahead to preliminary U.S. Purchasing Managers Index data due later in early U.S. trading. This, along with US bond yields and broader risk sentiment, will impact USD volatility and provide some momentum for AUD/USD. That said, AUD/USD looks set to still post modest weekly losses and remain around the lowest level since November 2022 at 0.6355 hit last week.
