The Australian Dollar (AUD) extended its rally for the second consecutive session against the US Dollar (USD) on Friday, buoyed by the potential for a rate cut by the People’s Bank of China (PBoC) and stronger commodity prices. A Financial Times report revealed that the PBoC may cut interest rates at an “appropriate time” this year, supporting the AUD, as fluctuations in China’s economy typically affect Australia due to their close trade ties.
China’s National Development and Reform Commission (NDRC) expressed confidence in continued economic recovery in 2025. The NDRC announced plans to ramp up funding through ultra-long treasury bonds, supporting “two new” programs, and expects steady consumption growth throughout the year.
The AUD/USD pair gained traction as the Australian Dollar rebounded from two-year lows, benefiting from rising commodity prices, particularly in oil and gold—key exports for Australia. Notable gains in energy and mining stocks, including Woodside Energy and Northern Star Resources, further supported the currency.
The Caixin Manufacturing Purchasing Managers’ Index (PMI) from China, released Thursday, also provided positive sentiment. Caixin Insight Group economist Wang Zhe noted that output and demand continued to grow, with the output gauge staying in expansionary territory for the 14th consecutive month and new orders increasing for the third straight month.
US Dollar Outlook Amid Economic Concerns and Geopolitical Tensions
The US Dollar Index (DXY), which measures the USD’s strength against six major currencies, hit a new multi-year high of 109.56 following strong Jobless Claims data from the United States. The claims for the week ending December 27 were 211K, lower than the expected 222K and previous 220K, providing support to the USD.
However, concerns about President-elect Donald Trump’s tariff plans and the Federal Reserve’s cautious stance on interest rate cuts in 2025 have kept traders on edge. The Fed‘s projections suggest fewer rate cuts, reflecting ongoing inflationary pressures. Additionally, rising geopolitical risks, including tensions in the Middle East and the Russia-Ukraine war, are likely to support the USD as a safe-haven currency.
China’s Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, missing market expectations of 51.7, which added further pressure on the Chinese economy and indirectly affected commodity currencies like the AUD.
RBA’s Outlook on Policy and Australian Dollar Technicals
The Reserve Bank of Australia (RBA) has indicated that if economic data aligns with or falls below forecasts, it may consider easing policy restrictions. However, if data surpasses expectations, it could necessitate maintaining restrictive policies for longer. RBA Governor Michele Bullock pointed to the strength of the labor market as a key reason why Australia has been slower than other nations in initiating monetary easing.
On the technical side, the AUD/USD trades around 0.6210, maintaining a bearish outlook as it remains within a descending channel. However, the 14-day Relative Strength Index (RSI) has recovered above 30, suggesting the possibility of a near-term upward correction. Immediate resistance is expected at the nine-day Exponential Moving Average (EMA) around 0.6220, with further resistance at the 14-day EMA near 0.6244. Key support levels include the lower boundary of the descending channel around 0.6020.
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