China's Services Purchasing Managers' Index (PMI), as reported by RatingDog, eased slightly to 54.1 in June from 54.4 in May, marking the third-steepest increase in services activity in nearly three years. Services exports grew for a second consecutive month, expanding at the fastest rate since October 2024 [1][2][3]. This data supported both the Australian Dollar (AUD) and New Zealand Dollar (NZD), which are often seen as proxies for Chinese economic performance due to strong trade ties. The AUD/USD pair turned positive for the second straight day, trading around 0.6930, while the NZD/USD pair gathered strength to approximately 0.5705 during Asian trading hours on Friday [1][2][3].
The US Dollar (USD) weakened following softer-than-expected US Nonfarm Payrolls (NFP) data. The US economy added only 57,000 jobs in June, well below the 110,000 forecast by economists. The previous month's figure was revised down from 172,000 to 129,000, indicating a softening labor market. Despite this, the US unemployment rate fell to 4.2% in June from 4.3% in May [1][2][4][5]. These labor market results led financial markets to reduce expectations for near-term US Federal Reserve (Fed) rate hikes, with the CME FedWatch tool showing odds of a US rate hike by September dropping to nearly 52% from 66% before the jobs data [1][2][5]. Market expectations for Fed rate increases in 2026 shifted from one to two hikes to between zero and one hike [2][5].
The Australian Dollar was the strongest against the Japanese Yen, gaining 0.18% on the day, and also showed gains against other major currencies, including the US Dollar and Euro [3]. The New Zealand Dollar also edged higher following the Chinese PMI report [1]. On the central bank front, ASB Bank dropped its call for a July hike from the Reserve Bank of New Zealand (RBNZ) and now expects the RBNZ to keep the Official Cash Rate (OCR) on hold at the upcoming July meeting, with steady 25-basis-point increases starting in September and the OCR peaking at 3.25% by early 2027 [1].
Geopolitical uncertainties, including US concerns over potential Israeli actions against Iranian negotiators and warnings from Iran regarding the Strait of Hormuz, contributed to market caution and limited aggressive moves in currency pairs such as AUD/USD and USD/JPY [2][5]. Thin liquidity due to the US Independence Day holiday also contributed to subdued market reactions [1][2][5].
Meanwhile, the Canadian Dollar (CAD) faced downward pressure due to falling oil prices, driven by easing geopolitical tensions in the Middle East. The S&P Global Manufacturing PMI for Canada edged up to 53 in June from 52.9 in May, but this modest improvement was insufficient to offset the drag from lower oil prices. The USD/CAD pair traded around 1.4190 during Asian hours on Friday [4].
CONCLUSION
China's slightly softer but still robust Services PMI supported the AUD and NZD, while weaker US jobs data weighed on the USD and reduced expectations for Fed rate hikes. Geopolitical uncertainties and thin holiday liquidity kept market moves in check. Overall, the market reaction was moderately positive for China-proxy currencies and negative for the USD.