The Australian Dollar (AUD) extended its winning streak for a third consecutive session against the US Dollar (USD) on Monday, buoyed by positive domestic and Chinese economic data. The AUD/USD pair capitalized on improving sentiment around Australia’s key trading partner, China, despite the backdrop of a stronger Greenback.
PMI Data Boosts Australian Dollar Sentiment
Australia’s Judo Bank Composite PMI for December 2024 was revised up to 50.2 from 49.9, signaling marginal growth in private sector activity for the third straight month. This expansion was led by the services sector, where the PMI rose to 50.8 from 50.5 in November, marking nearly a year of consistent growth. However, manufacturing output continued to contract, highlighting sectoral disparities.
China’s economic data further bolstered the AUD. The Caixin Services PMI rose to 52.2 in December, its fastest pace since May, surpassing forecasts of 51.7. However, the Caixin Manufacturing PMI dropped unexpectedly to 50.5 from 51.5, undershooting expectations of 51.7.
China’s state agencies underscored resilience in the face of global challenges. The Shanghai Stock Exchange reaffirmed commitments to opening capital markets, while the People’s Bank of China (PBoC) hinted at potential interest rate cuts in 2025 to support economic recovery. These developments are significant for the Australian economy, given its strong trade ties with China.
US Dollar Strength and Global Risk Factors
The US Dollar Index (DXY) held near 109.00, buoyed by stronger-than-expected economic indicators. December’s ISM Manufacturing PMI improved to 49.3, exceeding market expectations. Meanwhile, Initial Jobless Claims dropped to 211,000, signaling continued labor market resilience.
Federal Reserve officials maintained a hawkish tone, with Richmond Fed President Thomas Barkin, Governor Adriana Kugler, and San Francisco Fed President Mary Daly emphasizing the need for restrictive monetary policy to combat persistent inflation. The Fed’s projections of fewer rate cuts in 2025 reflect caution amid ongoing inflationary challenges.
Geopolitical tensions, including conflicts in the Middle East and the Russia-Ukraine war, continued to support the USD as a safe-haven asset, creating headwinds for risk-sensitive currencies like the AUD.
Technical Outlook: AUD/USD Faces Key Resistance
The AUD/USD pair hovered near 0.6230, testing the 14-day Exponential Moving Average (EMA) at 0.6243. While the 14-day Relative Strength Index (RSI) climbed above 30, indicating weakening bearish momentum, the pair remains entrenched in a descending channel on the daily chart.
Resistance: Immediate resistance is at the 14-day EMA of 0.6243, followed by the psychological level of 0.6300 at the channel’s upper boundary.
Support: Key support lies near the lower boundary of the descending channel at 0.6020.
Outlook
The Australian Dollar’s performance will hinge on further economic data releases and developments in global trade dynamics. While PMI data and optimism for China’s recovery provide near-term support, ongoing geopolitical risks and a robust US Dollar present challenges for sustained AUD gains.
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