Australian Dollar remains under pressure as PMI slows

AUD/USD loses ground for the third consecutive day, trading around 0.7110 during Asian hours on Wednesday. The Australian Dollar (AUD) remains subdued against the US Dollar (USD) following the release of September's preliminary S&P Global Purchasing Managers' Index (PMI) data for Australia, keeping the AUD/USD pair under pressure.

The slowdown was broad-based across key sectors: Manufacturing fell into contraction territory at 49.3, down from 52.0 previously, while the Services PMI eased to 51.4 from 53.2. Consequently, Australia’s Composite PMI dropped to 50.8 from its prior reading of 52.7.

Compounding the pressure on the AUD/USD pair is a strengthening US Dollar (USD), driven by the Federal Reserve's hawkish policy outlook. The US central bank recently raised its benchmark interest rate target by 25 basis points to the 3.75%–4.00% range, with policymakers signaling another potential rate hike before the end of the year.

Financial markets are actively pricing in this trajectory, with the CME FedWatch Tool indicating nearly an 89.2% probability of a December rate increase as traders turn their attention to the upcoming preliminary US PMI data release later on Wednesday.

Collins flags higher inflation risks, backing a more restrictive Fed stance

Fed’s Collins delivered a notably more hawkish tone, with an FXS Speechtracker score of 8.1 versus a historical average of 6.6, underscoring stronger conviction behind recent policy moves. The emphasis on supporting last week’s rate hike, increased likelihood of inflation staying notably above 2%, and a “somewhat more restrictive” federal funds rate signals a clear bias toward maintaining tighter conditions, especially now that the labor market is seen on a better footing. Overall, the speech reinforces the Fed’s willingness to prioritize a timely return to price stability after an extended period of too-high inflation, a backdrop typically supportive of the Dollar and yields.

The FXS Fed Sentiment Index rose by 0.53 points to 150.49, firmly in hawkish territory and consistent with the elevated FXS Speechtracker reading. This upward move in the FXS Fed Sentiment Index confirms that Collins’ remarks have incrementally strengthened market expectations for sustained restrictive policy, a configuration that tends to underpin the Dollar against lower-yielding peers.