The Australian dollar (AUD) was under pressure again on Thursday (5/22) as the US dollar (USD) found its footing, with risk appetite fading and broader markets leaning towards the defensive. A strong surge in the US Dollar Index (DXY) weighed on the AUD, pushing AUD/USD down to 0.6415, a key support level that has acted as a floor in recent sessions. At the time of writing, the pair was trading around 0.6418, hovering just above its intraday low as sellers tested the resolve of near-term support.

US dollar buoyed by strong data, but longer-term risks loom

The Aussie's decline reflects divergent policy trajectories and economic signals. With no significant Australian data due on Thursday, sentiment remains shaped by the Reserve Bank of Australia's (RBA) latest 25 basis point interest rate cut, which lowered the cash rate to 3.85%. Governor Michele Bullock remained cautious, citing slowing inflation and global trade uncertainties.

In contrast, the US dollar found support after a series of upbeat data releases. Initial Jobless Claims for the week ending May 18 came in at 227,000, below consensus of 230,000, underscoring the still-resilient labor market. Meanwhile, both the S&P US Global Manufacturing PMI (May, Prelim) and Services PMI (May, Prelim) came in at 52.3, well above the 50-mark that separates contraction from expansion. The data surprised to the upside, indicating a pickup in both factory and service sector activity.

However, sentiment around the greenback remains mixed amid broader fiscal concerns. Investors are still digesting President Donald Trump's "One Big Beautiful Bill," which was passed by the House of Representatives earlier this week. The bill proposes an extension of the 2017 tax cuts while reducing spending on key welfare programs. While some see potential for short-term stimulus, the legislation is expected to add more than $3.8 trillion to the federal deficit over the next decade. This has raised concerns about the sustainability of US debt and credit quality, especially after the recent rating downgrades. These structural concerns are capping the dollar's ​​upside, even in the face of positive near-term data. (alg)

Source: Fxstreet