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AUD/USD falls notably today but stays above 0.7076 support. Intraday bias stays neutral first. On the downside, firm break of 0.7076 will resume the decline from 0.7277. Next target is 100% projection of 0.7277 to 0.7076 from 0.7200 at 0.6999. On the upside, above 0.7200 will bring stronger rebound back to retest 0.7277 high. In […]

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Australia's services PMI fell to 48.7 in May from 50.7, with new orders contracting at the fastest pace in two and a half years and employment falling for the first time since late 2024.

Summary: Source: S&P Global Australia Services PMI, May 2026

• The services Business Activity Index fell to 48.7 in May from 50.7 in April, the second contraction in three months, with respondents citing reduced demand, market uncertainty and higher prices linked to the Middle East conflict
• New business declined at the sharpest pace in just under two and a half years, falling for a third consecutive month; new export orders also dropped for the second time in three months
• Employment fell for the first time since December 2024, ending a 17-month streak of job creation; the rate of decline was the sharpest since August 2021
• Input costs rose rapidly, driven primarily by fuel price increases attributed to the war; output price inflation was only fractionally below April's 39-month high
• Business confidence fell to its lowest since November 2023, with optimists linking any recovery hopes to a potential end to the Middle East conflict, rising sales and AI development
• The Composite Output Index, covering both manufacturing and services, fell to 48.7 from 50.4 in April, with S&P Global warning the data suggest Australia will struggle to generate growth in Q2

Australia's services sector contracted in May for the second time in three months, with new orders falling at their fastest pace in nearly two and a half years as the economic fallout from the Middle East war continued to squeeze demand and inflate costs across the economy.

The S&P Global Australia Services PMI Business Activity Index fell to 48.7 in May from 50.7 in April, dropping back below the 50.0 threshold that separates expansion from contraction. Survey respondents pointed directly to reduced demand, elevated prices and uncertainty linked to the ongoing conflict as the primary drivers of the deterioration.

New business volumes contracted for a third straight month, with the pace of decline the sharpest since late 2023. Export orders also fell for the second time in three months. The weakening demand environment prompted firms to cut staffing levels for the first time since December 2024, ending a 17-month run of employment growth. Though modest, the fall in headcount was the steepest since August 2021.

Cost pressures remain acute. Input costs continued to rise rapidly in May, with fuel price increases linked to the war cited as the dominant factor. The transport and storage sector reported the sharpest increases in both input and output costs of all five sectors monitored. Output price inflation eased only fractionally from April's 39-month high, meaning firms are still passing elevated costs through to customers at a near-record pace.

Business confidence deteriorated further, falling to a two-and-a-half-year low. Among the minority expecting conditions to improve, the most commonly cited hope was an end to the Middle East conflict.

The services result compounds a weak manufacturing PMI released earlier in the week. The Composite Output Index, covering both sectors, fell to 48.7 from 50.4 in April. Andrew Harker, Economics Director at S&P Global Market Intelligence, said the combined picture suggested Australia would struggle to generate any growth across the second quarter as a whole.

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The back-to-back deterioration in both services and manufacturing PMIs puts meaningful downward pressure on RBA rate cut expectations, with elevated fuel-driven inflation complicating any dovish pivot just as the economy weakens. The explicit and repeated linkage of the slowdown to Middle East war costs underlines that Hormuz disruption is now transmitting directly into Australian business conditions, not just energy prices. For the Australian dollar, the combination of softening growth and persistent inflation is a difficult backdrop, particularly if the composite reading continues to track below 50 into Q3.

EUR/USD started a downside correction from 1.1650. USD/CHF is rising and might aim for a move toward 0.7880 or 0.7900.

Gold price extended losses below $4,650 before the bulls appeared. WTI Crude oil prices are rising and could climb further higher toward $105.

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Fed Chair Powell’s eight-year run as Fed Chair officially came to an end today, and he exited with markets under heavy pressure from sharply rising yields and renewed inflation concerns.

US Treasury yields surged across the curve. The 2-year note yield rose 8.7 basis points on the day and 19.0 basis points for the week to 4.079% — the highest level since March 2025. Meanwhile, the 10-year yield climbed 13.8 basis points today and 23.7 basis points for the week to 4.597%, its highest level since May 2025.

A key driver behind the move was another sharp rise in oil prices, which continued to fuel inflation fears. WTI crude for July delivery surged $4.24, or 4.37%, to settle at $101.16. For the week, crude oil rallied $6.48, or 6.84%, adding to concerns that inflation pressures could remain elevated longer than markets had anticipated.

US equities did not respond well to the combination of higher yields and surging energy prices. The major indices gave back much of their weekly gains in Friday trading. The Dow Jones Industrial Average fell -1.07% on the day and ended the week down -0.17%. The S&P 500 declined -1.24% Friday but still managed a modest weekly gain of 0.13%. The NASDAQ dropped -1.54% on the day and slipped -0.08% for the week.

Small-cap stocks were hit particularly hard as rising yields pressured growth and financing expectations. The Russell 2000 fell -2.44% Friday and closed the week down -2.37%.

In the forex market, the US dollar strengthened broadly as rising yields boosted demand for the greenback. All the major currencies declined versus the dollar on the day:

• EUR -0.37%
• JPY -0.26%
• GBP -0.58%
• CHF -0.41%
• CAD -0.22%
• AUD -1.00%
• NZD -1.23%

For the week, the British pound was the weakest major currency amid political uncertainty and sharply higher UK and US yields. The New Zealand dollar was the next weakest as risk-off flows intensified:

• EUR -1.35%
• JPY -1.32%
• GBP -2.26%
• CHF -1.38%
• CAD -0.51%
• AUD -1.35%
• NZD -2.17%

Precious metals were also hammered by the combination of higher yields and a stronger US dollar. Gold fell $110.11, or -2.37%, to $4,539.39 — its largest one-day decline since March 26. Silver plunged $7.51, or -9.03%, to $75.89, marking its biggest daily drop since February 12.

On the economic front, the Empire State Manufacturing Index came in much stronger than expected at 19.6 versus 7.5 expected, reaching its highest level since April 2022. However, a large part of the strength appeared tied to rising prices, reinforcing inflation concerns rather than easing them.

Earlier this week, both CPI and PPI inflation reports came in significantly hotter than expected, increasing concerns that the upcoming PCE inflation data could also surprise to the upside. As a result, market pricing has shifted noticeably, with traders now seeing a greater likelihood of additional tightening rather than easing.

That shift runs counter to comments from incoming Fed Chair Kevin Warsh, who had advocated for lower rates while campaigning for the role under President Trump. However, once seated at the Fed, Warsh will hold just one vote on a 12-member FOMC committee. Given the recent inflation data and the sharp rise in yields, it is difficult to envision the new Chair supporting a rate cut at his first policy meeting.