Australian Dollar loses ground following China's dismal PMI

• The Australian Dollar struggles as Q2 Producer Price Index rose 0.7% QoQ, falling short of expectations.
• China's Caixin Manufacturing PMI slipped to 49.5 in July, down from 50.4 in June, and below the 50.3 expected.
• US Nonfarm Payrolls is expected to hold in positive territory.

The Australian Dollar (AUD) edges lower on Friday, continuing its seven-day losing streak. The AUD/USD pair remains steady following the release of economic figures from Australia and its close trading partner, China. Traders shift their focus toward the United States (US) Nonfarm Payrolls (NFP), due later in the day, which is expected to hold in positive territory.

Australia's Producer Price Index (PPI) rose by 0.7% quarter-over-quarter in the second quarter, against the expected and previous increase of 0.9%. The annual PPI climbed 3.4% in Q2 versus 3.7% prior. Meanwhile, China's Caixin Manufacturing Purchasing Managers Index (PMI) eased to 49.5 in July from 50.4 in June. This figure came in below the market forecast of 50.3.

The Australian Bureau of Statistics reported on Thursday that Australia's Retail Sales rose 1.2% month-over-month in June, compared to 0.5% in May (revised from 0.2%). The reading came in above the market expectations of 0.4%. Retail Sales climbed 0.3% QoQ in the second quarter, compared to 0.1% in Q1 (revised from 0%).

Australian Dollar continues to lose ground as US Dollar strengthens ahead of Nonfarm Payrolls

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, remains stronger and is trading around 100.00 at the time of writing.
• Core US Personal Consumption Expenditure Price Index (PCE) inflation ticked higher in June, rising 0.3% MoM as many market participants had expected. On an annualized basis, PCE inflation accelerated to 2.6% YoY, outrunning the expected hold at 2.5%.
• The Federal Reserve (Fed) decided to hold its benchmark federal funds rate in a range of 4.25%-4.5% at its July meeting on Wednesday, as widely expected. Fed Chair Jerome Powell said in a post-policy conference that the US central bank has "made no decisions" about a potential policy change in September, and it may take a bit to assess the effect of tariffs on consumer prices.
• US Gross Domestic Product (GDP) expanded at an annual rate of 3.0% for the April through June period. This figure followed the 0.5% contraction in the first quarter and came in stronger than the expectation of 2.4%.
• US President Donald Trump announced a new trade deal with South Korea, imposing a 15% US tariff on imports from South Korea. The agreement also includes a $350 billion commitment from South Korea toward US-owned and controlled investments, Reuters reported on Wednesday.
• The United States and European Union reached a framework trade agreement on Sunday that sets 15% tariffs on most European goods, taking effect on August 1. This deal has ended a months-long stand-off, per Bloomberg.
• China's Finance Minister Lan Fo'an said on Tuesday that the country will ramp up fiscal support to bolster domestic consumption and mitigate mounting economic headwinds. He emphasized that uncertainty around China's development environment is growing and Beijing will adopt more proactive fiscal policies to help stabilise growth.
• China's NBS Manufacturing Purchasing Managers' Index (PMI) dropped to 49.3 in July, as against 49.7 reported in June. The market forecast was 49.7. The NBS Non-Manufacturing PMI eased to 50.1 in July, versus June's 50.5 and below the estimated 50.3 figure.
• Australia's Building Permits, showing the number of total dwellings approved in Australia, climbed by 11.9% month-over-month in June, surpassing the market expectations of a 2% rise and the downwardly revised 2.2% increase in May. This marked the second consecutive month of growth in dwelling approvals and the strongest since May 2023.
• Australia's Consumer Price Index (CPI) rose 0.7% quarter-over-quarter in the second quarter, against the 0.9% increase in Q1 and the expected growth of 0.8%. Annually, CPI inflation eased to 2.1% in Q2, compared to 2.4% prior and below the market consensus of 2.2%.
• The monthly Consumer Price Index rose by 1.9% YoY in June, compared to the previous reading of a 2.1% increase. The RBA Trimmed Mean CPI for Q2 rose 0.6% and 2.7% on a quarterly and annual basis, respectively. Markets estimated an increase of 0.7% QoQ and 2.7% YoY in the quarter to June.

Australian Dollar remains below 0.6450 amid bearish bias

AUD/USD is trading around 0.6430 on Friday. The daily chart's technical analysis indicates a bearish bias as the 14-day Relative Strength Index (RSI) remains below the 50 mark. Additionally, the pair is positioned below the nine-day Exponential Moving Average (EMA), indicating that short-term price momentum is weaker.

On the downside, the AUD/USD pair could find the primary support at the two-month low of 0.6421, which was recorded on August 1. A break below this level could put downward pressure on the pair to test a three-month low at 0.6372, recorded on June 23.

The AUD/USD pair may target the initial barrier at the nine-day EMA of 0.6487, followed by the 50-day EMA of 0.6495. A break above these levels could strengthen the short- and medium-term price momentum and support the pair to explore the region around the eight-month high at 0.6625.

AUD/USD: Daily Chart