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The Australian dollar slipped below $0.703 on Friday and was on track for a weekly loss of around 1%, weighed down by a stronger US dollar and weaker-than-expected domestic PMI data. Flash PMI figures for February showed a broad-based cooling, indicating slower growth while inflationary pressures remain elevated. Composite, services, and manufacturing indices all eased from January levels but stayed above the 50-point threshold, signaling that activity is still expanding, albeit at a more moderate pace.
At the same time, the US dollar advanced on the back of solid US economic data and hawkish commentary from the Federal Reserve. In Australia, expectations for an earlier interest rate increase are firming. Markets now price in a 76% chance that the Reserve Bank of Australia will raise its cash rate by May, with the probability of a move as soon as March rising to about 28%. This repricing reflects stronger domestic data and more hawkish signals from RBA officials. Even so, May remains the central scenario unless upcoming key figures, including January’s monthly CPI and fourth-quarter GDP, deliver substantial upside surprises.
