The Australian Dollar (AUD) has lost value against the US Dollar (USD) after China’s RatingDog Services PMI fell slightly to 52.0, down from 52.1 in November. On the other hand, China’s Manufacturing PMI increased to 50.1 in December, up from 49.9. Because Australia closely trades with China, these economic changes can affect the AUD’s value. The AUD might gain some support if the Reserve Bank of Australia (RBA) considers raising interest rates. Attention will be on the upcoming Q4 CPI report. A strong inflation reading could lead to a rate increase during the meeting on February 3. Meanwhile, ongoing geopolitical tensions have strengthened the USD, with the US Dollar Index around 98.60, influenced by recent events in Venezuela involving the US and the Trump administration.

Technical Analysis of AUD/USD

In the AUD/USD market, the current analysis shows the pair is close to the nine-day EMA of 0.6681. It could potentially surpass the key level of 0.6700. However, if it drops below 0.6680, it may test recent lows around 0.6414. The 14-day RSI at 59.60 suggests there may be more upward movement ahead. We are seeing a trend where investors are fleeing to safety. The US Dollar has gained strength due to the situation in Venezuela. This geopolitical risk has pushed the VIX index, a measure of market fear, up over 30% in the past week to 22.5. As a result, the AUD/USD is under pressure and testing the important support level of 0.6680. Looking ahead, Australia’s Q4 CPI data on January 28 will be a major focus. If inflation remains high through late 2025, a strong report will likely confirm a rate hike from the RBA on February 3. Swap markets currently suggest there is a 75% chance of a hike, so a disappointing inflation reading could lead to a swift reversal of these expectations.

Impact of Global Economic Policies

While the RBA is considering tightening policies, the US Federal Reserve is on a different course, with futures indicating two rate cuts for 2026. Jerome Powell’s term as Fed chair ends in May, adding uncertainty to the US Dollar. This difference in policy is creating tension that will likely continue in the coming months. We are also observing mixed signals from China’s economy, with manufacturing improving while services are slowing. As China accounts for over 30% of Australia’s exports— a relationship tested during early 2020s trade disputes— any slowdown in China would significantly impact the Australian dollar. This situation complicates the case for a stronger AUD, even with a hawkish RBA. For derivative traders, the current market shows increased volatility as the AUD/USD tests its upward channel. Traders might consider buying short-dated puts to protect against a potential breakdown due to geopolitical issues. Alternatively, preparing for a significant movement after the January 28 CPI report using straddles or strangles could take advantage of anticipated volatility, regardless of its direction. Create your live VT Markets account and start trading now.

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