The Australian Dollar has declined after a mixed bag of economic indicators was released from China, halting a three-day winning streak against the US Dollar. The AUD/USD pair remains under pressure in light of the latest Purchasing Managers’ Index (PMI) data. Specifically, the manufacturing PMI dipped to 49.1 in January, falling below expectations and indicating a contraction, while the non-manufacturing PMI also showed a drop to 50.2 from the previous month’s 52.2. Given the close trading relationship, these figures have immediate implications for Australia’s economic outlook.
In a bid to bolster its struggling equity markets, China has implemented new long-term stock investment pilot programs valued at approximately $7.25 billion. Nevertheless, these efforts have not provided sufficient support for the Australian Dollar, which is sensitive to fluctuations in China’s economic environment.
Recently, China reported a decline in industrial profits, with a year-over-year drop of 3.3% in 2024, marking three consecutive years of contraction. The persistent challenges stem from weak consumer demand, deflationary pressures, and a prolonged downturn in the property market, all of which contribute to an uncertain economic trajectory for Australia.
In the US, the Dollar Index has rebounded from its recent lows, trading near 107.60 as market participants navigate uncertainty surrounding trade and immigration policies. The upcoming Federal Reserve meeting will be critical, especially in light of comments made by the US President advocating for immediate interest rate cuts. Despite this call for lower rates, analysts expect the Fed to maintain its current benchmark rate in the 4.25% – 4.50% range during its January meeting.
On the Australian economic front, the Judo Bank Composite PMI rose slightly to 50.3 in January, reflecting modest improvement. However, the Manufacturing PMI, while climbing to 49.8, is still shy of growth territory. Initial resistance for the AUD/USD pair is seen at 0.6300, while support levels can be found around 0.6265 and 0.6254, hinting at ongoing volatility in the currency’s performance.
