Australia's factory PMI rose to 51.5 in June, the highest since January, as supply-chain stress persists. Selling price inflation slowed, a data point the RBA will weigh ahead of the July employment report.
Australia's manufacturing sector ended the second quarter with a confirmed expansion. The S&P Global Manufacturing PMI came in at 51.5 in June, up from 50.7 in May. That marks the third straight month above the 50.0 growth threshold and the highest reading since January.
The headline number sits on top of persistent supply-chain stress. Andrew Harker, economics director at S&P Global, said suppliers' delivery times "lengthened substantially" during the month and that input costs "rose rapidly again." A memorandum of understanding signed by the US and Iran aimed at ending hostilities had not yet filtered through to shorter lead times, he noted.
One shift cuts the other way. The rate at which manufacturers raised selling prices slowed markedly in June. Harker said that could signal that overall price pressures are starting to ease, provided geopolitical tensions continue to settle. For the Reserve Bank of Australia, that is a data point worth watching. The RBA has held its cash rate at 4.35% since November, and sticky services inflation has been the main obstacle to easing. A slowdown in factory-gate inflation changes the mix, even if it is not enough on its own to prompt a cut.
Australian manufacturers appear to expect better demand ahead. Firms added to headcount and built up inventories of purchased inputs, both to guard against further supply disruptions and to be ready for new orders when they materialize. "Businesses are well positioned to ramp up production once new orders return to growth," Harker said.
The question for the Australian dollar is whether the PMI data alters the rate narrative. The AUD has been under pressure from a strong USD and China's uneven recovery. A manufacturing PMI that stays in expansion territory is modestly positive for the currency. The real driver for the RBA remains services inflation and the labor market. Selling price inflation slowing in the factory sector is one less worry, not a reason to cut rates.
The next major test for the Australian dollar is the June employment report, due July 18. The full S&P Global Australia Manufacturing PMI report is available from the firm. For more on the broader forex market analysis, see AlphaScala's coverage.
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