The Australian Dollar (AUD) holds losses against the US Dollar (USD) following the release of China’s RatingDog Services Purchasing Managers’ Index (PMI) on Monday, which declined to 52.0 in December from 52.1 in November. RatingDog reported last week that Manufacturing PMI climbed to 50.1 in December from 49.9 in November. It is important to note that any change in the Chinese economy could impact the AUD as China and Australia are close trading partners.
The AUD could gain support as expectations build for interest rate hikes by the Reserve Bank of Australia (RBA). Traders await Australia’s Q4 CPI report due on January 28, with analysts noting that a stronger-than-expected core inflation reading could prompt a rate hike at the RBA’s February 3 meeting. RBA Governor Michele Bullock said earlier that although the board did not explicitly consider a rate hike, it discussed the conditions under which interest rates might need to increase in 2026.
The AUD/USD pair depreciates as the US Dollar (USD) strengthens on safe-haven demand, driven by a renewed rise in geopolitical risks following the United States’ (US) capture of Venezuelan President Nicolas Maduro.
US Dollar rises amid US-Venezuelan tensions
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground and trading around 98.60 at the time of writing. ISM Manufacturing PMI data will be eyed later in the day.
- CNN reported over the weekend that the US President Donald Trump administration launched a “large-scale strike against Venezuela” and detained President Maduro to face charges, without congressional approval. Trump said the US would administer Venezuela until a safe, orderly, and judicious transition is achieved.
- The Guardian reported on Monday that President Trump warned Washington could launch a new military intervention if Venezuela’s interim president, Delcy Rodríguez, fails to meet US demands. He also made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
- Traders expect two additional Federal Reserve rate cuts in 2026. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
- Federal Open Market Committee (FOMC) December Meeting Minutes suggested last week that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening labor market.
- China’s official Manufacturing Purchasing Managers’ Index (PMI), which rose to 50.1 in December, compared to 49.2 in the previous reading. The reading came in above the market consensus of 49.2 in the reported month. The NBS Non-Manufacturing PMI climbed to 50.2 in December versus November’s 49.5 figure. The market forecast was for a 49.8 print.
- The RBA December Meeting Minutes indicated that policymakers stand ready to tighten policy if inflation fails to ease as expected, placing increased focus on the Q4 CPI report due January 28. Analysts note that a stronger-than-expected Q4 core inflation reading could trigger a rate hike at the RBA’s February 3 meeting.
- Australia’s headline inflation rose to 3.8% in October 2025 from 3.6% in September, remaining above the RBA’s 2–3% target range. As a result, markets are increasingly pricing in a rate hike as early as February 2026, with both the Commonwealth Bank of Australia and National Australia Bank projecting a rise to 3.85% at the RBA’s first policy meeting of the year. Consumer Inflation Expectations rose to 4.7% in December from November’s three-month low of 4.5%.
Australian Dollar hovers around nine-day EMA
AUD/USD is trading around 0.6680 on Monday. The technical analysis of the daily chart indicates that the pair hovers around the lower boundary of the ascending channel pattern. Further directions would offer a clear directional bias. The 14-day Relative Strength Index (RSI) at 59.60 suggests bullish momentum, with room for further upside before overbought conditions emerge.
The AUD/USD pair is testing the immediate barrier at the nine-day EMA of 0.6681. A break above this level would support the pair to test the psychological level of 0.6700, followed by 0.6727, the highest level since October 2024, reached on December 29. Further gains could allow the pair to approach the upper boundary of the ascending channel near 0.6810.
On the downside, the AUD/USD pair tests the lower ascending channel boundary around 0.6680. A break below the channel could expose the AUD/USD pair to the area around the six-month low near 0.6414, recorded on August 21.
AUD/USD: Daily ChartAustralian 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.
Source: https://www.fxstreet.com/news/australian-dollar-remains-weaker-following-chinas-ratingdog-services-pmi-202601050245
