US PMI Data Today Weighs on Dollar as AUD/USD Finds Support from RBA Rate Outlook

Recent US PMI Weakness Signals Manufacturing Slowdown

The U.S. PMI data today painted a concerning picture for the greenback, with the ISM Manufacturing index declining to 47.9 in December—marking the third consecutive monthly drop. This reading fell short of the 48.3 forecast and represented a pullback from November’s 48.2, signaling renewed contraction in the American industrial sector. Production and inventory levels deteriorated notably, though some bright spots emerged in New Orders and Export Orders subcategories. The weaker U.S. PMI data today underscored ongoing challenges within the manufacturing space, creating uncertainty around the strength of the broader US economy heading into 2026.

AUD/USD Advances as Markets Repriced Dollar Weakness

Following the softer U.S. PMI data today, the AUD/USD pair recovered to trade near the 0.6700 level, posting a 0.10% daily gain. The initial USD support driven by safe-haven demand—triggered by geopolitical tensions and the detention of Venezuelan President Nicolas Maduro—proved short-lived once the manufacturing data disappointed. The Australian Dollar capitalized on this shift, drawing strength from growing expectations that the Reserve Bank of Australia may maintain a firmer policy stance.

China’s Economic Pulse Remains Critical for the Australian Dollar

With China serving as Australia’s largest trading partner, recent economic readings from the region continue steering sentiment toward the AUD. December’s Services PMI moderated slightly to 52.0 from 52.1, suggesting a gentle deceleration in service-sector activity. More encouragingly, Manufacturing PMI rebounded to 50.1 from 49.9, crossing above the 50-point expansion threshold and indicating renewed growth momentum. These mixed signals from China inject complexity into the outlook, yet the recovery in manufacturing offers some reassurance for commodity-dependent Australia.

RBA Policy Path Influences Australian Dollar Direction

Domestically, Australian investors are zeroing in on the January 28 release of fourth-quarter Consumer Price Index figures, viewing this data as a potential catalyst for the Reserve Bank of Australia’s February 3 policy decision. Should core inflation surprise to the upside, the RBA may find justification for further monetary tightening. Governor Michele Bullock recently acknowledged that while an immediate rate hike wasn’t formally debated, the board reviewed scenarios requiring tighter monetary conditions. This hawkish undertone provides structural support to the Australian currency.

Federal Reserve Policy Outlook Remains in Flux

Looking further ahead, financial markets are positioned for approximately two additional Federal Reserve rate cuts throughout 2026. The December FOMC minutes revealed that several committee members preferred a pause on further easing if inflation maintained its downward trajectory. Additionally, potential shifts in Fed leadership—with President Trump potentially nominating a successor ahead of Jerome Powell’s May departure—introduce further policy uncertainty and could tilt toward accommodation. Market participants remain cautious as they assess how these developments might reshape the dollar’s medium-term trajectory against counterparts like the Australian Dollar.