The Australian dollar’s bearish tone continues on Tuesday, despite a recovery from morning losses against the US Dollar in light trade. This comes on the heels of reports that the United States could soften its position on future tariff talks, in a positive move for forex risk sentiment. The AUD/USD pair rises back around 0.6560, having fallen on soft Australian manufacturing figures.
Announcements of staged trade agreements by the US helped lift market sentiment and send risk-sensitive currencies like the Aussie higher. However, the bounce is still on fragile ground, with major US economic releases remaining in the spotlight later in the session.
AUD/USD steadies as traders weigh Fed outlook and shifting forex risk sentiment.
Australian and Chinese Manufacturing Data Drive Sentiment
Australia’s S&P Global Manufacturing PMI dropped to 50.6 in June from 51.0 in May, which was a sign of moderation in business activity. Factory production dropped to a nine-month low as companies cited high inventories and weaker conditions of demand. In the meantime, China’s Caixin Manufacturing PMI advanced to 50.4 in June from 48.3 in May, topping market forecasts of 49.0. This Chinese data improvement briefly supported the Australian Dollar because of close economic links between the two countries.
Soft domestic output figures continue to weigh on the overall AUD/USD outlook, keeping upside pressure in check. In total, the conflicting manufacturing data reinforces regional economies’ divergent trends and contributes to investor wariness.
USD Weakness Impact and Fed Uncertainty Continue
The US Dollar Index (DXY) continues its downward extension, trading at around 96.70 as investors reinterpret the Federal Reserve’s policy direction. Lower readings on inflation and dovish comments from key Federal Reserve officials contribute to sustaining the ongoing USD weakness effect. Fed Governor Neel Kashkari indicated he is looking for two cuts this year, beginning as soon as September.
Markets also monitor President Trump’s possible impact on the next Fed Chair, creating fears of political meddling. Despite that, the Australian dollar’s muted reaction indicates that global growth concerns and external risks are still overhanging factors. The AUD/USD pair is trading cautiously in wait for more clarity from forthcoming US data releases.
Traders Look to US ISM Manufacturing PMI Release
Later today, the US ISM Manufacturing PMI June release is due and should have an impact on near-term market direction. This follows last week’s US PCE Price Index, which delivered as expected with a 2.3% annual increase in May. The core PCE reading came in at 2.7% from the revised 2.6% in April, which fits the Fed’s inflation control story.
Traders will anticipate the PMI to validate whether US factory activity is stabilising or contracting with prevailing rate conditions. If data disappoints, risk currencies such as the AUD may experience short-term gains on heightened Fed cut expectations. Stronger outcomes, however, will snuff out positive momentum and reinforce the Australian Dollar bearish behaviour in the forex markets.
Technical Signs Endorse Bullish AUD/USD Structure
In spite of contradictory fundamentals, technical analysis indicates that the AUD/USD pair is holding on to major support levels. The pair still operates in an upward channel and trades near 0.6560, which is just below its eight-month high at 0.6583. The nine-day Exponential Moving Average (EMA) of 0.6529 acts as short-term support for the Aussie Dollar.
The 14-day Relative Strength Index (RSI) above 50 indicates that there is still short-term positive momentum. A break above 0.6583 would potentially unlock the way to 0.6650, the upper edge of the bullish channel. On the bearish side, breaking below 0.6529 would leave the AUD/USD pair vulnerable to further bearishness towards 0.6490 and 0.6456.
Wider Forex Risk Sentiment Remains Tenuous
Forex risk sentiment globally remains tenuous as markets absorb continuing geopolitical tensions and economic policy uncertainty. US fiscal concerns mount as fears that a planned spending bill will see the national debt grow by $3.3 trillion. In addition, increased geopolitical tensions in the Middle East contribute to investor jitters and demand for more secure assets.
Australian Dollar gains are contained within this backdrop, with defensive sentiment prevailing in market positioning. Despite Chinese and US positive developments, traders are still defensive and unwilling to take aggressive bets. As long as there is uncertainty, the subdued trend will continue through upcoming sessions.
Outlook: Australian Dollar Subdued Despite Short-Term Recovery
The Australian Dollar demonstrates resilience but is held back by fundamental and sentiment-driven headwinds. Better US-China trade optimism and stronger Chinese factory data provided some short-term relief for the Aussie. Australia’s weak domestic numbers, unhelpful global indicators, and risk-averse appetite, however, keep gains in check.
The AUD/USD pair may creep up if the US PMI comes in soft or Fed commentary turns dovish. But wider sentiment, rate divergence, and commodity-linked risks cap upside potential. While the market waits for further data and Fed steerage, the Australian Dollar subdued narrative continues to hold true for now.
