AUD/USD eases from highs and nears 0.6700 in hesitant markets

Australian Dollar’s recovery has been capped at the 0.6740 area on Tuesday, and the pair retreated during the European session to trade at the 0.6715 area at the time of writing, practically flat on the daily chart.

The Aussie is giving away gains on Tuesday as the US Dollar strengthens following Monday’s reversal. Investors are reluctant to take directional bets on the US Dollar ahead of a string of key US unemployment figures due later this week, which might help clarify the US Federal Reserve’s near-term path.

US data released on Monday showed that manufacturing activity contracted at the fastest pace in the last 14 months, as measured by the ISM Services Purchasing Managers’ Index, which sent the US Dollar tumbling across the board.

US data strengthens Fed doves’ views

December’s ISM Manufacturing PMI dropped to 47.9, from 48.2 in November, against market expectations of a slight improvement to 48.3. New orders remained well within contraction figures while prices kept growing at a steady pace, altogether, painting a grim picture of the outlook of factory activity in the US.

Furthermore, comments from the Minneapolis Fed President Neel Kashkari leaned to the dovish side, warning about the risks of higher unemployment. These remarks were taken as a sign that the Fed might be forced to cut rates more than once this year. Not the most supportive message for the US Dollar in that context.

In Australia, the hot consumer inflation figures seen in December have cemented market expectations that the RBA might be the first major central bank to hike 1 rates after the recent global easing cycle. In this context, Tuesday’s Australian S&P Global Services PMI, and the monthly Consumer Price Index, due on Wednesday, will be observed with particular interest to confirm those views.

Economic Indicator

S&P Global Services PMI

The Services Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in Australia’s services sector. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), employment and inflation. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for AUD.