Australian Dollar Holds Above Support After Service Sector Data
THE TAKEAWAY: Performance of Service Index falls to 50.3 > Wages and employment sub-categories show weakness > AUDUSD flat but holds above support line
The Australian Dollar was steady versus the USD in spite of a gauge of Australia’s service sector that signaled a slowdown. As of 23:30 GMT on Tuesday, the Aussie held above the 23.60% Fibonacci retracement line at 0.9541 (taken from the peak of 0.9584 reached earlier).
According to the Australian Industry Group and Commonwealth Bank of Australia, the Performance of Services Index fell to 50.3 from the August reading of 52.1. With a reading above 50, the indicator remains in expansion territory. However, with a number of key sub-categories – new orders, employment, wages, and inventories – contributing to the decline, the index reflects ongoing pessimism within the Australian service sector. In particular, the large drops in the employment (-4.3) and wages (-4.5) sub-categories point to continued softness in service-sector hiring.
The data comes after the Reserve Bank of Australia held its benchmark cash-rate target on hold at 4.75 percent. While the RBA extended its longest rate pause since 2006, the bank voiced concern about labor-market weakness and cited a more benign inflation outlook, thereby signaling the possibility of rate cuts. Markets are taking the most recent RBA statement in stride, with overnight index swaps predicting more than 25 bps of rate cuts at the central bank’s next meeting on November 1, according to Credit Suisse data. While the Aussie rallied late on Tuesday in line with other risk-bearing assets – on comments from EU Monetary and Economic Affairs Commissioner Olli Rehn signaling readiness among Eurozone officials to adopt more coordinated action – the increasing dovish tone at the RBA and mixed economic data could mean continued weakness of the currency.
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