Australian Economy Faces Slow Growth, Dollar Volatility Ahead

ISM Services PMI marks 14th month of expansion; Australian economy slow growth; dollar index drops pre-Powell testimony.

The Institute for Supply Management (ISM) Services Purchasing Managers’ Index (PMI) for February revealed a 14th consecutive month of expansion, though it fell short of market expectations. The reading stood at 52.6, below the forecasted 53.0, indicating robust growth in the services sector. Both new orders and production witnessed significant increases, underlining the sector’s vitality. However, price growth slowed, marking the 81st consecutive month of expansion but at a reduced rate from the previous month.

Simultaneously, the Census Bureau’s report on new orders for manufactured goods for January indicated a 3.6% month-on-month decline, missing estimates of a 3.1% decrease. This downturn marked the largest since the pandemic-induced lockdowns of 2020.

In response to the weaker-than-expected economic data, the demand for the dollar diminished, causing the Dollar Index (DXY) to drop from 103.85 to as low as 103.58 immediately after the release. However, the DXY later rebounded to trade around the 103.80 level by the end of the session.

Asia Session Outlook

The Australian economy’s growth in the third quarter of 2023, at 0.2% quarter-on-quarter, fell short of market forecasts of 0.5%. This and a sluggish fourth-quarter estimate suggest a steady but slow growth trajectory. Should GDP figures exceed expectations, the Australian Dollar (AUD) may experience a positive response.

Australian Economy Faces Slow Growth, Dollar Volatility Ahead

Key Events and Market Expectations

During the U.S. session, Federal Reserve Chair Jerome Powell is set to testify before the House Financial Services Committee on the Semi-Annual Monetary Policy Report, which will likely trigger volatility in currency markets. Furthermore, market analysts anticipate that the ADP Employment Report and JOLTS Job Openings reports will offer insights into the labor market’s health.

Central Bank Updates

The Federal Reserve reiterated its commitment to achieving maximum employment and sustaining inflation around 2.0%. Meanwhile, the Reserve Bank of Australia (RBA) maintained its cash rate target at 4.35% and expressed concerns over inflation despite easing in the December quarter. The Bank of Japan (BoJ) continued its Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC) to achieve a 2.0% inflation target.

Market Bias for the Next 24 Hours

Anticipations suggest that Gold will likely show weak bearish tendencies, driven by Powell’s testimony and the release of employment data. The Australian Dollar holds a medium bearish bias, while the New Zealand Dollar’s outlook remains similarly negative. The Japanese Yen and Euro show weak bullish tendencies, while the Swiss Franc displays weak bias. The Pound and Canadian Dollar exhibit a weak bearish bias, while concerns about China’s economic growth will likely maintain a weakly bearish stance on Oil.

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