Australian Dollar tumbles amid stronger US PMIs, softer Australian data

• AUD/USD falls more than 1% on Wednesday, weighed down by a stronger US Dollar.
• US private-sector activity accelerates sharply in September, while Australian activity data disappoints.
• Strong US economic data reinforces expectations of another Federal Reserve interest rate hike.

AUD/USD tumbles 1.07% on Wednesday and trades around 0.7040 at the time of writing, pressured by a combination of a stronger US Dollar (USD) and disappointing activity data from Australia.

The Australian Dollar (AUD) started losing ground following the release of preliminary S&P Global Purchasing Managers Index (PMI) data for September earlier in the day. Australia's Composite PMI fell to 50.8 from 52.7 in August, remaining only slightly above the 50 threshold level separating expansion from contraction.

The details of the report show a contraction in manufacturing activity and a slowdown in the services sector. The weaker figures appear to temper expectations regarding the Reserve Bank of Australia's (RBA) tightening path, with the Australian central bank expected to raise its policy rate by 25 basis points next week.

Selling pressure on AUD/USD intensified following the release of significantly stronger US economic data. The United States (US) S&P Global Composite PMI rose to 58.4 in September from 56 in August, pointing to a marked acceleration in private-sector activity.

The US Manufacturing PMI climbed to 57, well above the 53.5 forecast, while the Services PMI rose to 58.7 compared with expectations of 56. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that US business activity is expanding at its fastest pace in more than five years.

The release provided another boost to the US Dollar. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, gains 0.53% and trades around 101.05 after reaching a fresh two-month high.

The robust data also strengthens expectations that the Federal Reserve (Fed) still has room to raise interest rates further. The US central bank increased its policy rate by 25 basis points last week, bringing the target range to 3.75%-4%, while its latest projections point to at least one additional rate hike this year.

According to the CME FedWatch tool, markets now see around a 68% chance of another rate hike in October, up from around 55% a day earlier. US Treasury yields also remain elevated, with the ten-year yield hovering around 5.06%, providing additional support to the US Dollar against the Australian Dollar.

The combination of robust US activity, elevated Treasury yields and softer Australian economic data therefore keeps AUD/USD under significant pressure on Wednesday.

AUD/USD technical analysis

In the four-hour chart, AUD/USD trades at 0.7039, keeping a bearish near-term tone as it holds beneath both the 100-period simple moving average (SMA) at 0.7157 and the 200-period SMA at 0.7137. The pair has slipped back toward the lower end of the recent range, while the Relative Strength Index (14) at 26 suggests oversold conditions that may slow the downside but do not yet negate the prevailing pressure.

On the downside, immediate support is seen at the nearby horizontal level at 0.7020, ahead of a deeper floor at 0.6965. On the topside, initial resistance emerges at 0.7075, with the 200-period SMA at 0.7137 and the horizontal barrier at 0.7140 forming a dense cap, followed by the 100-period SMA at 0.7157, which would need to be reclaimed to ease the current bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)