The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Monday, recovering from two consecutive days of losses. The AUD/USD pair saw a notable uptick following the release of positive preliminary Purchasing Managers’ Index (PMI) data from Judo Bank.
Australia’s Judo Bank Manufacturing PMI rose to 52.6 in March, up from 50.4 in February, signaling expansion in the sector. Meanwhile, the Services PMI improved to 51.2 from 50.8, and the Composite PMI also increased to 51.3 from 50.6, suggesting a broad-based improvement in economic activity.
The AUD also gained traction as market expectations grow that the Reserve Bank of Australia (RBA) will keep interest rates unchanged in its upcoming April meeting, following its decision to cut borrowing costs for the first time in four years in February. In addition, analysts anticipate that expected stimulus measures in China could further boost the Australian economy, as China remains Australia’s largest trading partner.
Positive risk sentiment also supported the AUD, with the White House reportedly adjusting its tariff strategy ahead of the April 2 deadline, as reported by the Wall Street Journal. Additionally, easing geopolitical tensions contributed to improved market sentiment, with Ukrainian and US officials meeting in Riyadh on Sunday to discuss peace efforts in the ongoing conflict.
US Dollar Struggles Amid Economic Concerns
In contrast, the US Dollar struggled on Monday, with the US Dollar Index (DXY) slipping from its recent gains and trading lower around 104.00. The Greenback came under pressure as concerns about a potential US economic slowdown grew, exacerbated by trade policies under former President Donald Trump. Meanwhile, traders awaited the preliminary reading of the US S&P Global Manufacturing PMI for March.
However, the USD saw some support after hawkish remarks from Federal Reserve Chairman Jerome Powell last week, who reaffirmed that the labor market remains solid and inflation is moving closer to the Fed‘s 2% target, despite still being elevated.
On the trade front, Trump hinted at potential “talks” with China regarding trade issues and expressed hopes for a meeting with Chinese President Xi Jinping soon. However, recent trade proposals, including steep fees on China-linked vessels, have raised uncertainty, especially in sectors like US coal and agriculture, adding to economic concerns.
Australian Economy Faces Challenges Despite PMI Gains
Australia’s February Employment Change fell short of expectations, with a decline of 52.8K jobs, following a revised increase of 44K in January. The unemployment rate remained steady at 4.1%, in line with market expectations. Despite these challenges, the Australian economy stands to benefit from China’s stimulus measures, with the Chinese government set to boost consumption by raising wages and easing financial burdens, in a bid to stimulate its economy.
Bank of America’s Oliver Levingston forecasts a gradual recovery for the Australian Dollar starting in the second quarter, driven first by USD depreciation and later by the delayed effects of China’s economic stimulus, which could take hold in the second half of 2025.
Last week, RBA Assistant Governor Sarah Hunter reiterated the central bank’s cautious stance on rate cuts, signaling a more conservative approach than market expectations. The RBA has emphasized the importance of closely monitoring US policy moves and their potential impact on inflation in Australia.
Technical Outlook: AUD/USD Near Key Resistance Levels
The AUD/USD pair is trading near 0.6290, with technical indicators showing a bearish bias. The pair remains within a descending channel pattern, and the 14-day Relative Strength Index (RSI) is slightly below 50, indicating continued bearish momentum.
Immediate support is located at the lower boundary of the descending channel around 0.6240. A break below this level could strengthen the bearish outlook, pushing the pair toward the seven-week low of 0.6187, recorded on March 5.
On the upside, initial resistance is found near the 50-day Exponential Moving Average (EMA) at 0.6307, followed closely by the nine-day EMA at 0.6311. A breakout above these levels could fuel short-term bullish momentum, potentially testing the upper boundary of the descending channel around 0.6360.
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