AUD/USD sparks lower after weak Australia services PMI and trade data

The AUD/USD pair is falling today as traders reflect on the weak economic data from Australia. The country’s exports declined in July while exports increased. In August, the services PMI declined below 50 for the first time in several months.

Australia services sector contracts

In August, Australia experienced a second wave of the virus leading to lockdowns in Melbourne and Victoria. As a result, these lockdowns helped slow the country’s recovery that has been going on in the past few months.

On Tuesday, data from the Australian Industry Group (AIG) showed that the manufacturing PMI dropped from the previous 53.5 to 49.3. Another data from Markit showed that the PMI fell from 54.0 to 53.6.

Today, data from Markit and the Commonwealth Bank showed that the services sector was the most affected during the month. The services PMI declined to 49.0 from the previous 58.2. A PMI reading of below 50 is usually a sign of contraction.

In the report, the researchers said that the total new business inflows declined at one of the fastest paces since the survey started. External demand deteriorated while orders from foreign buyers declined at the fastest pace since May. As a result, companies continued to operate below their capacity while average cost burdens increased. However, companies remain optimistic that business will pick up later this year.

Meanwhile, the composite PMI, which combines the output in the services and manufacturing sectors declined to 49.4. That was the first contraction in two months.

Australia trade surplus falls

The AUD/USD pair is also reacting to Australian trade numbers. According to the Australia’s Bureau of Statistics (ABS), the country’s goods and services credits declined by 4% to $34.4 billion in August. At the same time, goods and services debits increased by 7% to $29.8 billion.

As a result, this led to a trade surplus of more than $4.6 billion. Analysts were expecting the surplus to rise to $5.4 billion.

The trade numbers came as the country continues to face significant challenges with China, its biggest trading partner. The country exports more than 39% of its goods to the second-biggest economy in the world.

The main issue is that China has accused Australia of being more aligned with Western countries like the US. The tensions have increased recently after Australia joined other countries in calling for an inquiry into origins of the pandemic. Also, Australia has banned Huawei from participating in its 5G network.

AUD/USD technical chart

The daily chart shows that the AUD/USD pair has been in a strong upward trend since March. However, after reaching a multi-year high of 0.7400 on Monday, the pair has dropped for the past three consecutive days. Also, it remains above the 50-day and 100-day exponential moving averages while the RSI has dropped from the overbought level of 70. Therefore, there is a likelihood that the pair will continue falling as bears target the next support at 0.7026.