AUD/USD slips below 0.6420 ahead of US PMI data

• Australian PMI data shows mixed signals, manufacturing holds steady while the services sector softens.
• AUD/USD reverses early gains, pressured by a slight recovery in the US Dollar.
• The Aussie pair slips below 0.6420 as focus shifts to the US PMI release.

The Australian Dollar (AUD) inches lower against the US Dollar (USD) on Thursday, erasing earlier gains. The AUD/USD pair is holding within a narrow range, down 0.50% at the time of writing, to trade around 0.6420 in the European trading hours.

The pair reversed after a brief surge in volatility during the early Asian session, when Australia's latest Purchasing Managers' Index (PMI) figures offered a short-lived boost. The preliminary S&P Global Composite PMI slowed modestly to 50.6 in May, down from 51 in April, showing that the overall private-business activity in the economy expanded at a softer pace. On the other hand, the S&P Global Manufacturing PMI held steady at 51.7 in May, while the Services PMI eased slightly to 50.5 from 51 in April. The mixed data briefly pushed the Aussie pair toward the 0.6450 psychological barrier before sellers regained control.

The data presents a mixed picture, with manufacturing activity remaining steady while services show signs of cooling, indicating that Australia's economy is holding up but lacks strong momentum. It may give the Reserve Bank of Australia (RBA) room to pause after its recent interest rate cut, while also keeping the door open for further easing if conditions do not improve.

At its May meeting on Tuesday, the RBA lowered the Official Cash Rate (OCR) target by 25 basis points to 3.85% from 4.10%, citing moderating inflation and a more balanced risk profile. In its statement, the RBA noted that "inflation has fallen substantially since the peak in 2022," and that "the risks to inflation have become more balanced." The central bank emphasized its cautious approach, stating that it "remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply."

Meanwhile, the US Dollar Index (DXY), which tracks the value of the US Dollar against a basket of six major currencies, finds its footing ahead of the US preliminary S&P Global PMI release for May later today. The DXY snaps a three-day losing streak, trading near 99.80 at the time of writing after rebounding from a two-week low of 99.34 the previous day.