AUD/USD retraces to near 0.6450 on slowdown in China’s PMI

AUD/USD corrects from 0.6500 as the Chinese private sector faces pressure due to higher tariffs imposed by the US. Both Caixin Manufacturing and Services PMI grew moderately in April. The Fed is expected to leave interest rates steady on Wednesday. The AUD/USD pair corrects sharply to near 0.6450 in Tuesday’s European session from the five-month high of 0.6500 posted on Monday. The Aussie pair retraces as the Australian Dollar (AUD) underperforms across the board due to a slowdown in business activity in China. Australian Dollar PRICE Today The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Swiss Franc. The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote). Signs of moderate growth in economic activities in China weigh heavily on the Aussie Dollar, given Australia’s significant reliance on its exports to Beijing. Caixin Manufacturing and Services Purchasing Managers’ Index (PMI) data for April have demonstrated that businesses are facing pressure due to the fallout of higher tariffs by United States (US) President Donald Trump. Activities in both the manufacturing and the services sector expanded at a moderate pace. The exports from China to the US are facing a 145% import duty, limiting US companies from buying from their Chinese trading partners. Domestically, firming expectations that the Reserve Bank of Australia (RBA) will reduce its Official Cash Rate (OCR) in the policy meeting later this month have also pushed the AUD on the backfoot. Meanwhile, the US Dollar (USD) has recovered a majority of its intraday losses and has turned almost flat, with investors focusing on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds from the day’s low of 99.50 to near 99.75. According to the CME FedWatch tool, traders have fully priced in that the Fed will leave interest rates steady in the range of 4.25%-4.50% for the third straight meeting in a row. US Dollar FAQs The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away. The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback. In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar. Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar. Source: https://www.fxstreet.com/news/aud-usd-retraces-to-near-06450-on-slowdown-in-chinas-pmi-202505061030