Australian Dollar trades steadily as weak PMI data and RBNZ rate hike bets remain in focus

• October PMI figures show the first private-sector contraction since May, but AUD remains resilient.
• Following Andrew Hauser's warning of a deteriorating inflation outlook, the probability of an RBNZ rate hike rose sharply to 45%.
• A recovery in US Treasury yields is supporting the US Dollar, potentially limiting AUD/USD gains.

Preliminary Purchasing Managers' Index (PMI) data have left the Australian Dollar (AUD) steady, with AUD/USD trading near 0.7020 in early European trading on Friday after modest losses the day before. The figures were released by S&P Global. Its S&P Global Composite PMI fell from 51.3 in September to 47.7 in October, the weakest reading since March and the first contraction in private-sector activity since May.

At 49.7 in October, the Manufacturing PMI was slightly above September's 21-month low of 49.6, although it still signalled a second consecutive month of contraction. The Services PMI dropped from 51.9 in September to 47.8 in October, its lowest level since March and its first contraction since May. New business continued to expand, however, despite a marked slowdown in growth.

Remarks by Reserve Bank of Australia (RBA) monetary policy board member Andrew Hauser have prompted traders to increase bets on an RBA rate rise. Speaking on Wednesday, Hauser described the inflation outlook for the coming months as "materially worse". The Guardian reported that the likelihood of a rate increase at November's policy meeting had risen to 45%, compared with 30% before his comments. Such a move would be the fifth increase this year, taking the Official Cash Rate (OCR) target from 4.6% to 4.85%, the highest since the global financial crisis.

A recovering US Dollar (USD) could nevertheless limit further gains in AUD/USD. On Friday, the US 10-year Treasury yield climbed back towards 4.98%, having dropped by more than 10 basis points to a one-month low the day before. Safe-haven demand had previously put upward pressure on US bonds as the sell-off in technology and artificial intelligence shares deepened. With concerns mounting over the sustainability of AI investment, a major driver of US economic growth, financial markets have also pared back expectations of additional Federal Reserve rate increases.