The Australian Dollar (AUD) edges higher against the US Dollar (USD) on Wednesday, extending gains after rising more than 1% in the previous session. The AUD/USD pair remains supported following stronger-than-expected Chinese Services Purchasing Managers’ Index (PMI) data. China’s Services PMI increased to 52.3 in January from 52.0 in December, exceeding market expectations of 51.8. Given China’s role as Australia’s largest trading partner, improving economic activity there continues to underpin the Aussie.
The AUD also drew support from upbeat domestic data. Australia’s seasonally adjusted S&P Global Composite PMI climbed to 55.7 in January from 51.0 in December, marking the strongest expansion in nearly four years. Services PMI rose sharply to 56.3 from 51.1, its highest level since February 2022. The reading surpassed the flash estimate of 56.0 and remained well above the 50.0 threshold, extending the expansion in services activity to a two-year streak.
Meanwhile, the Reserve Bank of Australia (RBA) raised the Official Cash Rate by 25 basis points to 3.85% on Tuesday, citing stronger-than-anticipated economic growth and persistent inflation pressures. Markets have since increased the probability of another rate hike in May to around 80% and now price in roughly 40 basis points of additional tightening over the remainder of the year.
RBA Governor Michele Bullock noted during the post-meeting press conference that inflation remains uncomfortably high and is likely to take longer to return to target. She emphasized that the central bank will remain data-dependent and avoid providing forward guidance.
US Dollar struggles to regain momentum after recent losses
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, remains under pressure for a second consecutive session, trading near the 97.40 level at the time of writing. Investor attention later in the day will turn to the Institute for Supply Management’s (ISM) Services PMI, which is expected to ease to 53.5 in January from 54.4 in December.
The Bureau of Labor Statistics will not release the January employment report as initially scheduled due to last weekend’s partial government shutdown. The shutdown ended late Tuesday after President Donald Trump signed a funding agreement negotiated with Senate Democrats, despite lingering tensions over immigration policy.
Earlier data pointed to resilience in the US economy, as the ISM Manufacturing PMI rebounded sharply to 52.6 in January from 47.9 in December, beating market expectations of 48.5. In addition, Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair was viewed by markets as a signal of a more cautious and disciplined approach to monetary easing.
The US Dollar briefly found support as risk sentiment improved following a Senate agreement to advance a government funding package, helping avert a prolonged shutdown. However, persistent inflation pressures continue to reinforce the Federal Reserve’s cautious stance. Producer Price Index (PPI) inflation remained unchanged at 3.0% year-over-year in December, above expectations for a slowdown. Core PPI accelerated to 3.3% from 3.0%, highlighting ongoing upstream price pressures.
St. Louis Fed President Alberto Musalem stated that additional rate cuts are not justified at this stage, describing the current policy rate range of 3.50%–3.75% as broadly neutral. Atlanta Fed President Raphael Bostic echoed a similar view, calling for patience and maintaining a modestly restrictive policy stance.
Additional data highlights from Australia and China
Australia’s RBA Trimmed Mean inflation rose 0.2% month-over-month and 3.3% year-over-year, while monthly CPI jumped 1.0% in December, exceeding forecasts of 0.7%. Export prices increased 3.2% quarter-over-quarter in Q4 2025, marking the strongest gain in a year, while import prices rose 0.9%, reversing a decline in the previous quarter.
In China, the Manufacturing PMI edged up to 50.3 in January from 50.1 in December, in line with expectations and signaling a modest expansion in factory activity—the fastest pace since October.
Australia’s TD-MI Inflation Gauge rose to 3.6% year-over-year in January, while the monthly reading increased by 0.2%, slowing sharply from December’s two-year high. Meanwhile, ANZ Job Advertisements surged 4.4% month-over-month in December 2025, posting the strongest monthly gain since February 2022 and signaling renewed momentum in labor demand.
