The Australian Dollar (AUD) is gaining momentum against the US Dollar (USD) following the release of China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) on Thursday. As key trading partners, fluctuations in China’s economic indicators typically have a notable impact on the Australian market.
China’s Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, down from 51.5 in November and below the market expectation of 51.7. Wang Zhe, an economist at Caixin Insight Group, commented that despite the decline, supply and demand expanded, with manufacturers’ output and new orders continuing to grow. The output gauge remained in expansionary territory for the 14th consecutive month.
On the Australian front, the Reserve Bank of Australia (RBA) has become increasingly confident about inflation, though it acknowledged ongoing risks. The RBA emphasized the need for monetary policy to remain “sufficiently restrictive” until inflation shows greater certainty of being under control.
Despite the US Dollar strengthening amid the Federal Reserve’s hawkish shift in policy, the Australian Dollar has gained ground. The US Dollar Index (DXY), which tracks the USD against six major currencies, has rebounded to multi-year highs, trading around 108.50. This rise is attributed to the Fed’s cautious approach to rate cuts in 2025, alongside concerns about potential economic policies under the incoming Trump administration. Additionally, geopolitical tensions in the Middle East and the Russia-Ukraine conflict are supporting the USD, which is viewed as a safe-haven asset.
Traders remain cautious about President-elect Trump’s economic policies, particularly the potential for tariffs to increase the cost of living. This, coupled with the Federal Open Market Committee’s (FOMC) projections of fewer rate cuts in 2025, has fueled caution regarding the Fed’s future actions.
In China, the official Manufacturing PMI fell to 50.1 in December, down from 50.3 in November and below market expectations. However, the NBS Non-Manufacturing PMI showed improvement, rising to 52.2 in December from 50.0 in November, surpassing estimates.
The RBA noted that weaker-than-expected data would help build confidence in inflation control and may justify policy easing. Conversely, stronger-than-anticipated data could lead to a prolonged period of restrictive monetary policy. RBA Governor Michele Bullock highlighted the strength of the labor market as a key factor behind the slower pace of monetary easing compared to other nations.
Technically, the AUD/USD pair is trading near 0.6210, showing a bearish outlook on the daily chart within a descending channel pattern. The 14-day Relative Strength Index (RSI) has rebounded above 30, suggesting potential for a near-term correction.
Immediate resistance lies at the nine-day Exponential Moving Average (EMA) at 0.6225, with the next barrier at the 14-day EMA at 0.6251. A key resistance level to watch is the upper boundary of the descending channel, around the psychological level of 0.6300. On the downside, the pair could find support near the lower boundary of the channel at 0.6040.
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