Australian Dollar rebounds vs USD; Trump's tariffs and US-Iran tensions cap gains

AUD/USD edges higher as Australia’s flash PMIs reaffirm RBA rate hike bets and lift the Aussie.
Energy-driven inflation fears fuel hawkish Fed expectations and benefit the USD amid Iran risks.
Traders look to the US PMIs for some impetus as the focus shifts to the FOMC meeting next week.

The AUD/USD pair attracts some buyers during the Asian session on Friday and reverses a part of the previous day's slide back to the weekly trough. The mixed fundamental backdrop, however, warrants caution before confirming that the corrective slide from a nearly five-week high, around the 0.7025 area, touched on Tuesday has run its course and positioning for the resumption of the uptrend from the June low.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The US Dollar (USD) preserves its strong weekly gains to the highest level since June 26 and turns out to be a key factor acting as a headwind for the AUD/USD pair. A further escalation of tensions between the US and Iran remains supportive of the recent rise in crude oil prices to the highest level since June 11, which has been fueling inflationary concerns and bolstering US Federal Reserve (Fed) rate hike bets.

Moreover, US President Donald Trump's new trade tariffs temper investors' appetite for riskier assets and further underpin the safe-haven Greenback. According to a notice released by the office of US Trade Representative Jamieson Greer, the Trump administration is set to impose sweeping new tariffs of between 10% and 12.5% on 60 of the top trading partners, covering nearly all of the country's imports.

The Australian Dollar (AUD), however, draws support from the better-than-expected release of domestic flash PMIs, signaling a second consecutive month of expansion for the broader private sector. This follows Thursday's upbeat Australian employment details and reaffirms bets for more interest rate hikes by the Reserve Bank of Australia (RBA), which helps limit the downside for the AUD/USD pair.

Traders now look forward to flash US PMIs, due later during the early North American session. Apart from this, incoming geopolitical headlines will play a key role in influencing the USD price dynamics. Meanwhile, the focus will remain glued to the highly-anticipated two-day FOMC monetary policy meeting next week, which should determine the near-term trajectory for the buck and the AUD/USD pair.

Economic Indicator

S&P Global Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging private-business activity in Australia for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the Australian private economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for AUD.