Australian Dollar holds gains following stronger Chinese PMI data

• China’s Manufacturing PMI climbed to 51.5 in August, strengthening the Australian Dollar.
• Australian building permits dipped 3.6% in July, performing better than the anticipated decline.
• Rising rate-hike expectations driven by Federal Reserve comments cap the AUD/USD pair’s upside.

AUD/USD gains ground for the second consecutive day, trading around 0.7170 during the Asian hours on Tuesday. The pair appreciates as the Australian Dollar (AUD) remains stronger following the release of China’s RatingDog Manufacturing Purchasing Managers’ Index (PMI), which climbed to 51.5 in August from 50.9 in July. The market forecast was for a 50.9 reading. China and Australia are close trading partners, so any change in Chinese economy could impact the AUD.

Australia’s Building Permits slipped 3.6% month-over-month (MoM) in July, against the expected decline of 4.8% and the previous reading of 7.2% increase. Total dwellings unit approved increase 9% year-over-year (YoY), against the 8.9% increase prior.

The upside of the AUD/USD pair is restrained as the US Dollar (USD) rebounds amid hawkish sentiment surrounding the US Federal Reserve (Fed) policy stance. Traders increased their bets on a September rate hike after Warsh said the Fed will “have work to do” if policymakers are not confident that underlying ‌inflation is returning to its 2% target.

Fed clarity on inflation target keeps Dollar bulls engaged

Strategists at Scotiabank note that recent Fed commentary has sharpened the policy outlook, with officials “effectively removed ambiguity around the Fed’s inflation target” and issuing “a clear warning that unless inflation makes progress towards the 2% target ‘with speed’, the Fed could be pushed to tighten policy.” This firmer guidance on the inflation objective is seen as reinforcing higher rate expectations into the September FOMC and helping to underpin the Dollar, even as it gives back part of its latest gains.

Goolsbee flags persistent inflation but backs steady rates, keeping Dollar focus on Fed’s main issue

Fed’s Goolsbee delivered a moderately hawkish-leaning message, with a 6.2/10 FXS Speechtracker score just above the 6.1/10 historical average, underscoring inflation as the central policy challenge. Agreement with Warsh on the economic backdrop and the emphasis that inflation from overheated demand is “hard to address” and has lasted longer than expected highlight concern about price pressures, even as Goolsbee signaled comfort with holding rates steady at the July FOMC and downplayed procedural issues like the number of meetings. The tone suggests a Fed still firmly focused on inflation, but not in a rush to tighten further absent clearer evidence of renewed demand-driven price acceleration.

The FXS Fed Sentiment Index slipped by 0.41 points to 129.29, indicating a modest pullback in perceived hawkishness following the speech. Despite the decline, the index remains well above the neutral 100 threshold, signaling that Fed communication is still firmly in hawkish territory, with Goolsbee’s remarks reinforcing inflation as the main issue even as the FXS Speechtracker score only marginally exceeds the established baseline.

Technical Analysis:

In the daily chart, AUD/USD trades at 0.7170, maintaining a bullish near-term bias as price holds above both the nine- and 50-day Exponential Moving Averages (EMAs). The alignment of the shorter EMA above the longer one reinforces an upward trend structure, while the 14-day Relative Strength Index (RSI) at 64.24 stays in positive territory without yet reaching extreme overbought conditions.

On the downside, immediate support is seen at the nine-day EMA near 0.7156, followed by the 50-day EMA at 0.7071, which together define a nearby demand zone. Below these, deeper structural support levels are located at 0.6688, 0.6434 and 0.6348, where buyers would be expected to re-emerge if a broader corrective phase unfolds.

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