AUD unable to hold onto gains as USD buoyed by service sector outperformance

Key Movers

The US dollar advanced against most counterparts on Wednesday, buoyed by a record high ISM services PMI report. Having come under pressure following weaker than expected leading employment data the USD rebounded strongly as the measure of service sector performance printed well beyond expectations. A 7-point gain in business activity and an uptick across demand for new orders and employment helped fuel expectations the US economic recovery remains on track despite the challenges presented by the COVID-19 Delta variant. A deep dive into the monthly print showed shortages in the supply of input goods, labour and extended delivery times which continue to add to the rising costs of service suggesting transitory inflationary pressures will not abate in the near term. The stronger than anticipated print coupled with hawkish commentary from Fed policymaker Richard Clarida helped fuel USD gains through the latter half of the overnight session, propping up the dollar index and driving a 0.2% gain on the day.Both the euro and pound gave up ground on the day slipping below 1.1850 and 1.39 respectively. Our attentions turn now to tonight’s Bank of England policy meeting. We will be keenly attuned to any significant change in economic forecasting, but anticipate policymakers will refrain from adjusting the current policy setting. All in all the market will likely continue to bounce within the week's well-defined ranges ahead of Friday’s non-farm payroll print.