Australian Dollar Holds Firm as Softer Fed Outlook Weighs

Key Moments

AUD/USD traded higher for a second consecutive session, hovering near 0.6930 after an earlier dip toward 0.6910.
China’s RatingDog Services PMI eased to 54.1 in June from 54.4, but remained in expansion territory, lending support to the AUD.
Weak U.S. labor data tempered expectations for future Fed rate hikes, though geopolitical tensions limited further U.S. Dollar downside.

Australian Dollar Extends Recovery Against Softer Greenback

The AUD/USD pair advanced for a second straight session, reversing a modest pullback seen during Asian trading that briefly pushed the pair toward the 0.6910 area. Renewed selling in the U.S. Dollar helped lift the pair, with spot levels stabilizing near 0.6930, just below the one-and-a-half-week high reached on Wednesday.

The move reflected continued demand for the Australian Dollar as investors reacted to fresh macro data from China and shifting expectations around the future path of U.S. interest rates.

China Services PMI Slips Slightly but Remains Supportive for AUD

AUD/USD held its gains after the release of the latest RatingDog China Services Purchasing Managers Index (PMI). The index eased in June to 54.1 from a three-month high of 54.4, but the reading still indicated ongoing expansion in China’s services sector.

This expansionary reading continued to underpin sentiment toward the Australian Dollar, often viewed as a proxy for China-related growth dynamics. The data signaled that activity in the services economy remained robust despite the modest pullback from the prior month.

U.S. Dollar Weakens on Dovish Shift in Fed Rate Expectations

The U.S. Dollar lingered near a two-week low, hit on Thursday, as investors reassessed the trajectory of U.S. Federal Reserve policy. Diminishing expectations for additional rate hikes weighed on the currency and provided an additional tailwind for AUD/USD.

The adjustment in rate expectations followed the latest U.S. labor market figures. The closely watched Nonfarm Payrolls (NFP), released on Wednesday, showed that the economy added 57K jobs in June, significantly below the 110K forecast. In addition, the prior month’s job gains were revised lower to 129K from 172K, reinforcing signs of easing labor market momentum. These developments offset the decline in the Unemployment Rate to 4.2% in June.

In response to the weaker jobs data, market participants scaled back projections for future Fed tightening. Expectations shifted from one to two potential rate increases in 2026 to a range between zero and one hike, reducing support for the U.S. Dollar.

Geopolitics and Thin Liquidity Temper AUD/USD Upside

Despite the softer U.S. Dollar backdrop, the advance in AUD/USD remained constrained. Persistent geopolitical risks limited the willingness of U.S. Dollar bears to establish larger short positions, thereby capping the pair’s upside.

According to the New York Times, U.S. officials were concerned that Israel might be planning to kill Iran’s senior negotiators, an event that could disrupt negotiations and spark renewed conflict. At the same time, Iran’s military headquarters warned that any U.S. interference in the Strait of Hormuz would be met with a “decisive and swift response.”

Additionally, reduced market liquidity due to a U.S. holiday added another layer of caution. Against this backdrop, participants appeared reluctant to chase further gains in AUD/USD without confirmation of strong follow-through buying, even as the pair looked on track to post modest weekly gains for the first time in three weeks. Price action remained highly sensitive to movements in the U.S. Dollar.

RatingDog Services PMI: Key Details

The RatingDog Services PMI is released monthly by Caixin Insight Group and S&P Global and serves as a forward-looking gauge of business conditions in China’s services sector. The index is constructed from survey responses supplied by senior executives across both private and state-owned enterprises.

Respondents indicate whether key business variables have improved, deteriorated, or remained unchanged compared with the previous month. As such, the PMI can provide an early signal on potential shifts in broader economic indicators, including Gross Domestic Product, industrial output, employment, and inflation.

Values range from 0 to 100, with 50.0 marking no change from the prior month. Readings above 50 suggest that the services economy is expanding and are generally interpreted as positive for the Renminbi (CNY), while figures below 50 point to contraction and are typically viewed as negative for CNY.