The AUD/USD pair is actively declining despite relatively strong labor market data in Australia and robust PMI indexes. The pair has dropped to the base of the 0.64 level, updating a two-month price low. The Aussie is weakening more "despite" than "because of," although there are also arguments in favor of the southern trend.

For example, the Australian dollar came under pressure as consumer inflation expectations declined. And although Australian consumers' inflation estimates often exceed official data, these figures are a good gauge of current household sentiment. According to the data, this indicator fell to 3.9% — the lowest level since March this year. It is also worth noting that the downward trend has been recorded for the second month in a row, indicating a noticeable improvement in perceptions of inflationary risks (i.e., consumers are beginning to believe in price stabilization). This is quite important, since inflation expectations influence household behavior — from consumption to long-term contracts. If the downward trend continues, it may provide an additional argument in favor of another rate cut by the RBA.

Meanwhile, the latest PMI data supported the Australian dollar, but the market undeservedly ignored them. In particular, the S&P Global manufacturing PMI rose in August to 52.9 (up from 51.3 the previous month) — the strongest result since September 2022. Growth has been recorded for the second month in a row. The services PMI also rose sharply — to 55.1, the highest since April 2022. The composite PMI similarly showed upward dynamics, climbing to 54.9 points (also the highest since April 2022). This indicator has consistently grown over the last three months.

What does this release indicate?

To begin with, all three indices are in expansion territory, well above the 50.0 threshold, pointing to confident (and growing) momentum in both manufacturing and services. The services sector deserves special mention, as it showed the most impressive result. This is important since services make up the largest share of Australia's economy. The growth of the services PMI signals strong domestic demand (both consumer and business services). Manufacturing PMI also shows revival: new orders and output are increasing, which reflects recovering supply chains and stronger external demand.

Why didn't the Australian PMI indices support AUD/USD buyers? In my view, Jerome Powell is to blame, with his speech expected on Friday at the Jackson Hole Economic Symposium. Ahead of this event, the U.S. dollar is "staying afloat" across all dollar pairs — and AUD/USD is no exception.

There is intrigue around Powell's Friday speech. Some analysts believe the Fed Chair will express concern about the cooling U.S. labor market in light of the disappointing July Non-Farm Payrolls. Others expect him to focus on the July CPI and PPI reports, which showed accelerating inflation. Depending on which stance he takes ("dovish" or "hawkish"), the greenback will set the vector of its movement.

Ahead of this event, the dollar is strengthening on expectations that inflation risks outweigh employment risks. This was the stance expressed by FOMC members at the July meeting, according to the minutes published yesterday (though it should be noted that the July meeting took place before the release of key employment and inflation reports for July). Following the minutes, market discussions intensified, suggesting Powell may deliver an overly cautious tone on Friday.

It is clear that if the Fed Chair on Friday does not meet "expectations," the U.S. dollar will come under significant pressure.

Under such fundamental conditions, buying or selling AUD/USD looks equally risky despite the downward price momentum. Moreover, the bears have so far failed to break through the 0.6420 support level (the lower line of the Bollinger Bands on the daily chart), although they tested this target. This once again highlights that both short and long positions are equally unreliable, as Jerome Powell is capable of completely "redrawing" the fundamental picture across all major dollar pairs. At the same time, under the current circumstances, the Aussie has fallen entirely under the control of the greenback: the tone of trading is set — and will continue to be set — by the U.S. dollar, whose "health" will depend on the tone of Powell's rhetoric.