AUD/USD Pair Faces Headwinds Amidst Rising Borrowing Costs

Investors are growing increasingly concerned about the negative impact of rising borrowing costs on the economy, and these worries have been exacerbated by disappointing macroeconomic data from China. The official Chinese Manufacturing Purchasing Managers' Index (PMI) improved slightly to 49 in June, up from the previous reading of 48.8, but it still indicates a contraction in the sector for the third consecutive month. On the other hand, the PMI for the services sector exceeded consensus estimates by reaching 53.2 in the reported month, although it was lower than the 54.5 recorded in May. This development acts as a headwind for the Australian Dollar (AUD), which is closely tied to the Chinese economy, and limits the upside potential of the AUD/USD currency pair.

Furthermore, the AUD is being undermined by expectations that the Reserve Bank of Australia (RBA) will refrain from raising interest rates in July. These expectations were reinforced by soft domestic data released on Wednesday, revealing that consumer inflation reached a 13-month low in May. Meanwhile, the US Dollar (USD) remains strong, trading near its highest level since June 13, supported by the Federal Reserve's hawkish outlook. The release of positive US macroeconomic data on Thursday further solidified market expectations of a 25-basis-point interest rate increase at the next Federal Open Market Committee (FOMC) meeting scheduled for July 25-26.

The possibility of additional tightening of monetary policy by the US central bank continues to bolster US Treasury bond yields and maintain support for the USD. However, market participants are displaying cautiousness and are waiting for the release of the US Personal Consumption Expenditures (PCE) Price Index, which will have a significant impact on expectations regarding future rate hikes by the Fed. This, in turn, will drive demand for the USD and provide a fresh direction for the AUD/USD pair. Nevertheless, spot prices for the currency pair are set to record losses for the second consecutive week.


Technical Analysis:

Short positions below 0.6800 with targets at 0.6570 & 0.6455 in extension.


Above 0.6800 look for further upside with 0.7030 as targets.