China’s Manufacturing PMI rose to 51.5 in August, bolstering the Australian Dollar. Australian building permits experienced a decline of 3.6% in July, which was an improvement compared to the expected downturn. Rising rate-hike expectations, influenced by comments from the Federal Reserve, limit the upside potential of the AUD/USD pair. AUD/USD appreciates for the second consecutive day, hovering near 0.7170 during the Asian trading session on Tuesday. The pair appreciates as the Australian Dollar remains stronger following the release of China’s RatingDog Manufacturing Purchasing Managers’ Index, which climbed to 51.5 in August from 50.9 in July. The market forecast indicated a reading of 50.9. China and Australia maintain a significant trading relationship, thus any fluctuations in the Chinese economy may have repercussions for the Australian dollar. Australia’s Building Permits decreased by 3.6% month-over-month in July, contrasting with the anticipated decline of 4.8% and the prior reading of a 7.2% increase.
Total dwelling units approved increased by 9% year-over-year, compared to the previous increase of 8.9%. The upside of the AUD/USD pair is constrained as the US Dollar rebounds amid hawkish sentiment surrounding the US Federal Reserve policy stance. Traders have heightened their expectations for a September rate hike following Warsh’s assertion that the Fed will “have work to do” if there is a lack of confidence among policymakers regarding the return of underlying inflation to its 2% target. Strategists note that recent Fed commentary has sharpened the policy outlook, with officials “effectively removed ambiguity around the Fed’s inflation target” and issuing “a clear warning that unless inflation makes progress towards the 2% target ‘with speed’, the Fed could be pushed to tighten policy.” This firmer guidance on the inflation objective is seen as reinforcing higher rate expectations into the September FOMC and helping to underpin the Dollar, even as it gives back part of its latest gains. Goolsbee highlights the ongoing challenge of inflation while supporting the maintenance of current interest rates, thereby directing the Dollar’s attention to the Federal Reserve’s primary concern.
Fed’s Goolsbee delivered a moderately hawkish-leaning message, with a 6.2/10 FXS Speechtracker score just above the 6.1/10 historical average, underscoring inflation as the central policy challenge. Agreement with Warsh on the economic backdrop and the emphasis that inflation from overheated demand is “hard to address” and has lasted longer than expected underscores concern about price pressures. Meanwhile, Goolsbee indicated a level of comfort with maintaining rates steady at the July FOMC and minimised procedural issues such as the number of meetings. The tone indicates that the Fed remains steadfast in its commitment to addressing inflation, yet it does not appear inclined to implement further tightening measures without more definitive signs of a resurgence in demand-driven price increases. The FXS Fed Sentiment Index decreased by 0.41 points to 129.29, reflecting a slight retreat in perceived hawkishness after the speech. Despite the decline, the index remains well above the neutral 100 threshold, indicating that Fed communication is still firmly in hawkish territory.
Goolsbee’s remarks further emphasise inflation as the primary concern, even as the FXS Speechtracker score only slightly surpasses the established baseline. In the daily chart, AUD/USD is positioned at 0.7170, sustaining a bullish near-term outlook as the price remains above the nine- and 50-day Exponential Moving Averages. The positioning of the shorter EMA above the longer EMA supports an upward trend structure, while the 14-day Relative Strength Index at 64.24 remains in positive territory, not yet entering extreme overbought conditions. On the downside, immediate support is observed at the nine-day EMA around 0.7156, followed by the 50-day EMA at 0.7071, which collectively delineate a proximate demand zone. Below these levels, deeper structural support is found at 0.6688, 0.6434, and 0.6348, where it is anticipated that buyers would re-emerge should a broader corrective phase materialise.
