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  • Australia Dollar (AUD) gains ground after RBA reiterates that downturn is not as bad as initially feared
  • Australian service sector expected to have expanded in July
  • US Dollar (USD) also trades higher versus major peers as data remains supportive
  • US factory orders increase 6.2%

The Australian Dollar US Dollar (AUD/USD) exchange rate is advancing on Tuesday, paring losses from the previous session. The pair settled on Monday -0.25% at US$0.7124. At 14:15 UTC, AUD/USD trades +0.25% at US$0.7142.

The Reserve Bank of Australia offered nothing new at its July monetary policy meeting. As expected, the RBA kept monetary policy unchanged with interest rates at historically low levels of 0.25%.

RBA governor Dr Philip Lowe warned that the Australian economy was experiencing its deepest recession since 1930’s however, he reiterated that the downturn hasn’t been as deep as initially feared.

He also warned that the resurgence in coronavirus cases in the state of Victoria will have an economic impact. However, the fact that he didn’t voice any concerns over the strength of the Aussie Dollar relieved investors sending the Australian Dollar higher still.

Broadly speaking economic data remains supportive of the Australian Dollar with the recovery gaining momentum. However, the lockdown in Melbourne could cause this momentum to slow going forwards.

Attention will now turn to the service sector PMI. Analysts are expecting service sector activity to remain in strong expansionary territory at 58.5.

The US Dollar is also trading broadly higher versus its major peers after a weaker start. US economic data remains supportive of the US Dollar. Factory Orders jumped 6.2% month on month in June, above the 5% increase forecast.

The strong factory orders data comes following US manufacturing data on Monday which revealed that manufacturing activity accelerated to its highest level in a year and a half last month. Orders increased despite rising coronavirus cases.

Both the manufacturing PMI and factory orders data have calmed investor nerves that rising coronavirus cases were hampering the economic recovery.

Investors will now look ahead to service sector PMI data and the ADP private payroll data due to released tomorrow. These data readings will give investors guidance as what to expect from Friday’s non farm payroll.