Australian Dollar remains subdued following softer S&P Global PMI data
- Australian Dollar weakens after S&P Global Purchasing Managers’ Index shows slowing growth in February.
- Australia’s Composite PMI fell to 52.0; Services to 52.2; Manufacturing to 51.5, all slower but still expanding.
- The US Dollar gains after Initial Jobless Claims fell to 206K, below forecasts.
Australian Dollar (AUD) holds losses against the US Dollar (USD) during the Asian hours on Friday. The AUD/USD pair trades around 0.7040 at the time of writing after giving up recent gains from the previous session.
The Australian Dollar (AUD) comes under pressure after S&P Global’s preliminary February Purchasing Managers’ Index (PMI) data showed a broad-based cooling in activity, indicating slower growth while inflation pressures remain sticky.
Australia’s Composite PMI slipped to 52.0 in February from 55.7 in January, marking a seventeenth consecutive month of expansion but at a more moderate pace. The Services PMI eased to 52.2 from 56.3, while the Manufacturing PMI edged down to 51.5 from 52.3, both signaling continued growth, albeit slower than at the start of 2026.
The AUD/USD pair also remains under pressure as the US Dollar (USD) draws support after the US Department of Labor (DOL) reported that Initial Jobless Claims declined to 206K for the week ending February 14, down from the prior week’s revised 229K and below the 225K consensus forecast. Traders await Friday’s preliminary US Q4 Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) data for fresh direction.
The Federal Open Market Committee (FOMC) Minutes from the January meeting reignited speculation about potential rate hikes should inflation remain persistent. While most policymakers supported keeping rates unchanged, only a few favored a cut, and officials indicated they would consider easing if inflation moderates as anticipated.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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