The AUD/USD pair is stabilizing around the mid-0.6500s after disappointing PMI numbers from China over the weekend. However, support comes from different expectations for Fed and RBA policies and a recent breakout above the 100-day SMA. In November, China’s official Manufacturing PMI fell below 50.0 for the eighth consecutive month, signaling contraction. The Non-Manufacturing PMI dropped to 49.5, its lowest since December 2022, marking the first contraction in almost three years.

Market Reactions to China’s Economic Measures

The initial market reaction was brief, helped by easing trade tensions and government efforts to boost consumption in China. A weaker US Dollar and lowered expectations for RBA policy easing are strengthening the Australian Dollar. The USD Index is close to a two-week low, influenced by expectations of a Federal Reserve interest rate cut. Positive market sentiment is weakening the USD, benefiting riskier assets like the AUD/USD. Technically, the breakout above the 100-day SMA supports further gains for the AUD/USD. Traders are cautious and are looking forward to upcoming US economic data, such as the ISM Manufacturing PMI, for guidance. The NBS Non-Manufacturing PMI, which assesses China’s service sector, indicates trends based on figures above 50 for expansion and below 50 for contraction. The recent reading of 49.5 shows a downturn, affecting the Renminbi.

Impact of Central Bank Policies

The AUD/USD is holding steadily just under the 0.6550 mark, demonstrating strength despite the disappointing Chinese economic data. The market is focused more on the contrasting approaches of the Reserve Bank of Australia and a Federal Reserve expected to cut interest rates. This difference in policies creates support for the currency pair. The main story is the weakness of the US Dollar, driven by increasing certainty of a Fed rate cut this month. Looking back at October’s inflation report, which showed US CPI cooling to 2.9%, futures markets now see over a 90% chance of a rate cut at the December 17th meeting. This expectation is putting pressure on the dollar and lifting risk-sensitive currencies like the Aussie Dollar. In contrast, the RBA is maintaining its position, as Australia’s inflation remains persistent, with the latest indicator showing a steady 3.8%. This divergence in policies—one central bank easing while the other holds—signals a bullish trend for the AUD/USD. It suggests that interest rate differences will increasingly favor the Aussie Dollar in the coming weeks. However, the Chinese data is still significant, as the Non-Manufacturing PMI’s drop to 49.5 indicates its first contraction since the recovery began in December 2022. Traders could consider buying call options to prepare for potential AUD/USD gains while protecting against a downturn linked to China’s economy. This strategy allows participation in a rally while limiting potential losses if the situation in China worsens. From a technical perspective, last Friday’s breakout above the 100-day simple moving average is a key bullish development. This level, around 0.6520, should now be seen as critical support. As long as the pair stays above this mark, the path of least resistance seems to lead toward the next major resistance level near 0.6650. Before making significant moves, traders should pay attention to the upcoming US ISM Manufacturing PMI data. A weaker-than-expected number would reinforce the slow growth narrative in the US, likely pushing the AUD/USD higher. Conversely, a surprisingly strong reading could result in a temporary pullback, presenting a better entry point for those betting on long-term trends. Create your live VT Markets account and start trading now.

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