The Australian dollar (AUD) weakened against the US dollar (USD) amid rising risk aversion amid growing concerns over US-China trade tensions. The AUD/USD pair failed to gain support from the Judo Bank Purchasing Managers' Index (PMI) released on Wednesday.
The Judo Bank Australia Composite PMI rose to 51.1 in January from 50.2 in December, reflecting modest growth in private sector activity. Meanwhile, the Judo Bank Services PMI rose to 51.2 from 50.8, marking the twelfth straight month of expansion in the services sector. Despite the modest growth, it was the strongest since August.
The AUD may depreciate further amid increasing likelihood that the Reserve Bank of Australia (RBA) could consider a rate cut in February. The RBA has kept the Official Cash Rate (OCR) at 4.35% since November 2023, stressing that inflation must "sustainably" return to its 2%-3% target range before any policy easing.
The Australian dollar faces challenges as market volatility remains a concern as investors eye the ongoing trade war between the United States (US) and China, Australia's main trading partner. China has retaliated with new US tariffs of 10% that came into effect on Tuesday. However, Trump said on Monday afternoon that he would likely speak to China in the next 24 hours. He also warned, "If we can't get a deal with China, the tariffs will be very, very large."
Source: FXStreet
