Australian Dollar climbs after upbeat Chinese PMI data
- The Australian Dollar gains ground in Monday’s early Asian session.
- China's NBS Manufacturing PMI rose to 50.5 in March; Non-Manufacturing PMI climbed to 50.8.
- The RBA interest rate decision and US ISM Manufacturing PMI will be the highlights on Tuesday.
The Australian Dollar (AUD) recovers some lost ground on Monday, bolstered by the upbeat Chinese economic data. The latest data released on Monday showed that China’s NBS Manufacturing Purchasing Managers' Index (PMI) rose to 50.5 in March, compared to 50.2 in February. The reading came in line with the market consensus. Meanwhile, the NBS Non-Manufacturing PMI improved to 50.8 in March versus 50.4 prior and stronger than the 50.5 expected.
However, the upside for the pair might be limited due to global trade concerns ahead of a planned announcement on Wednesday by US President Donald Trump on reciprocal tariffs. Looking ahead, investors will closely monitor the Reserve Bank of Australia (RBA) interest rate decision on Tuesday. The Australian central bank is set to keep interest rates unchanged at the April meeting as it waits out an election campaign fought on cost-of-living issues and girds for the economic impact of a US-driven upheaval in global trade. On the US docket, the ISM Manufacturing PMI for March will be released later on Tuesday.
Australian Dollar gains traction ahead of RBA rate decision
- Economists surveyed by Bloomberg anticipate the RBA will stand pat at 4.1% and stick with a cautious stance after easing for the first time in four years last month.
- The US Personal Consumption Expenditures (PCE) Price Index, rose 2.5% YoY in February, the US Bureau of Economic Analysis reported on Friday. This reading matched the market expectation and January's reading.
- The core PCE Price Index, which excludes volatile food and energy prices, jumped 2.8% on a yearly basis in February, above the estimation and January's increase of 2.7% (revised from 2.6%). On a monthly basis, the PCE Price Index and the core PCE Price Index increased 0.3% and 0.4%, respectively.
- The US Personal Income increased by 0.8% on a monthly basis in February, while Personal Spending rose by 0.4% during the same reported period.
- Swaps traders continued to price in about two quarter-point rate cuts this year, with the first seen coming in July, according to the CME FedWatch tool.
- San Francisco Fed President Mary Daly said on Friday that she expects two rate cuts this year, but with robust economic indicators, policymakers can hold off on cutting rates until they evaluate how businesses adapt to tariff costs.
Australian Dollar remains stuck within a symmetrical triangle pattern, but bearish outlook remains in place
AUD/USD trades in positive territory on the day. The pair remains capped within the symmetrical triangle pattern on the daily timeframe. The bearish bias remains intact, characterized by the price holding below the key 100-day Exponential Moving Average (EMA). Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, indicating neutral momentum in the near term.
The first upside barrier for AUD/USD emerges at 0.6330, the high of March 26. A strong move above this level could see a rally to 0.6355, the 100-day EMA. Further north, the next hurdle is seen at 0.6375, the upper boundary of the symmetrical triangle pattern.
On the downside, the low of March 24 at 0.6262 acts as an initial support level for the pair. If bearish momentum builds under the mentioned level, it could trigger more selling and drag AUD/USD down toward 0.6225, the lower limit of the triangle pattern. The additional downside filter to watch is 0.6186, the low of March 4.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.