AUD/USD recovers lost ground below 0.6350 following Australian PMI data

• AUD/USD recovers lost ground near 0.6335 amid the correction of USD to a one-month low.
• The Chicago Fed National Activity Index suggests the US economy is still some distance from a recession.
• The preliminary Australian S&P Global PMI showed an ease in inflationary pressure in October.
• Investors will monitor the US S&P Global PMI due on Tuesday.

The AUD/USD pair posts modest gains below the mid 0.6300s during the early Asian session on Tuesday. The rebound of the pair is supported by the correction of the US dollar (USD) and the US Treasury bond yields. The pair currently trades around 0.6336, gaining 0.02% on the day.

That being said, the focus was on the Treasury market in the previous session. The 10-year Treasury yield hit 5.02% for the first time since 2007, but then reversed its course, falling to 4.83%. This, in turn, exerts some selling pressure on the USD. Meanwhile, the US Dollar Index (DXY) dropped to a one-month low of 105.60.

The Chicago Fed National Activity Index suggests the US economy is still some distance from a recession. The figure rose to +0.02 in September versus -0.22 prior. A zero value for the index indicates the economy is growing at trend. 

The Federal Open Market Committee (FOMC) enters its blackout period. Atlanta Federal Reserve (Fed) President Raphael Bostic said on Friday that he doesn’t think that the US central bank will cut the rate before the middle of next year. Fed Philadelphia President Patrick Harker reiterated his preference to keep interest rates unchanged. While Fed Cleveland President Loretta Mester said the US central bank is “at or near the peak of the rate hike cycle. According to the CME FedWatch Tool, the markets don’t see the probability of a November rate hike, but the odds for January 2024 remain over 30%.

On the Aussie front, the preliminary Australian S&P Global Composite PMI for October came in at 47.3 from 51.5 in the previous reading. Meanwhile, the Manufacturing PMI eased to 48.0 versus 48.7 prior and the Services PMI plunged back into contraction by falling to 47.6 from the previous month of 51.8. Markets expected the Reserve Bank of Australia (RBA) to tighten policy further. RBA Governor Michele Bullock said that if inflation persists above projections, the RBA would take appropriate policy actions.

Moving on, traders will closely watch the US S&P Global PMI due on Tuesday. Later this week, the monthly and quarterly Australian Consumer Price Index (CPI) will be released. On Thursday, the preliminary estimate of the US Q3 Gross Domestic Product will be due and the RBA Governor Michele Bullock will deliver a speech. On Friday, the Core Personal Consumption Expenditure Index will be released. Fed officials will not deliver any speeches this week due to the blackout period ahead of the FOMC meeting the following week.