Chinese President Xi Jinping is dedicated to enacting more active macroeconomic policies. His goal is to enhance the economy, leading to effective quality improvements and reasonable growth. Currently, the AUD/USD pair is trading at approximately 0.6690, showing a slight decrease of 0.04% for the day.

Factors Affecting The Australian Dollar

The Australian Dollar (AUD) is influenced by various elements, such as interest rates set by the Reserve Bank of Australia (RBA), iron ore prices, and the state of the Chinese economy. Market sentiment also plays a role, with a risk-on environment benefiting the AUD. The RBA influences the AUD by setting interest rates to keep inflation between 2-3%. Higher interest rates bolster the AUD, while the RBA utilizes quantitative easing and tightening to shape credit conditions. As Australia’s largest trading partner, China significantly affects the value of the AUD. When China’s economy does well, demand for the AUD tends to rise. Iron ore, Australia’s top export, directly impacts the AUD as well. When iron ore prices rise, the AUD benefits from increased demand, improving the trade balance. The Trade Balance, which measures the gap between export earnings and import payments, also affects the AUD. A positive Trade Balance strengthens the AUD, while a negative one has the opposite effect.

Chinese Economic Stimulus And Its Effects

China’s indication of increasing economic stimulus is an important update as we enter the new year. This suggests a likely rise in demand for Australian raw materials, potentially boosting the Australian dollar in the weeks ahead. We can already see a response in iron ore prices, which are vital for Australia’s economy. Futures prices have risen to around $125 per tonne this week, recovering from earlier lows in the fourth quarter of 2025. Historically, as observed during the ups and downs of 2023 and 2024, a rise in iron ore demand has strongly supported the AUD. This call for stimulus is expected, given recent data from China. Industrial production in November 2025 increased by only 4.1%, falling short of analysts’ expectations. The new policy measures are aimed at addressing this economic weakness. With the AUD/USD currently around 0.6690, we should consider positioning ourselves for a possible increase in the first quarter of 2026. In this environment, call options on the AUD/USD may be a smart strategy to capitalize on potential gains. We are looking for a breakout above the 0.6750 level, which has capped the pair for most of the last quarter. However, we need to keep a close eye on the Reserve Bank of Australia’s next steps. The RBA maintained its cash rate at 3.85% in December 2025, citing ongoing concerns about domestic inflation. Any indication of a future rate cut could limit the AUD’s upward potential, creating tension between Chinese demand and Australian monetary policy. Create your live VT Markets account and start trading now.

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