Australia’s S&P Global Manufacturing PMI rose to 52.4 in January, up from 51.6. The Services PMI jumped to 56.0, up from 51.1, and the Composite PMI increased to 55.5 from 51.0. During the trading day, the AUD/USD pair climbed by 1.13%, reaching 0.6837. Interest rates set by the Reserve Bank of Australia (RBA) are a key factor influencing the Australian Dollar.

Impact Of Resource Prices And Trade Relations

Australia’s resource-rich economy is closely linked to Iron Ore prices, which affect the AUD. The health of the Chinese economy, as Australia’s largest trading partner, also plays a significant role in shaping the Australian Dollar. When the RBA adjusts interest rates, it aims to keep inflation steady at 2-3%. This monetary policy can strengthen or weaken the AUD. A strong Chinese economy boosts demand for Australian exports, raising the AUD’s value. Higher Iron Ore prices typically result in a stronger AUD due to increased demand. The Trade Balance, which measures the difference between export earnings and import costs, also influences the Australian Dollar. A positive Trade Balance strengthens the AUD as foreign buyers increase demand. Recent PMI data for January shows promising signs in the Australian economy, exceeding expectations. The services index reaching 56.0 is particularly notable, indicating broad growth. Such economic strength could lead the RBA to adopt a more aggressive approach to interest rates. This domestic improvement coincides with positive news from China, which reported better-than-expected industrial output for December 2025. With China’s commitment to infrastructure projects, the outlook for Australian commodity exports is becoming more favorable in early 2026. This supports the value of the Australian dollar.

Commodity Markets And Currency Strategies

The commodity markets reflect this optimism, with iron ore prices rising above $140 per tonne for the first time in months. Prices had softened during mid-2025’s economic uncertainty, but this rebound is a major boost for Australia’s trade balance and supports the currency. Throughout most of 2025, the RBA took a cautious approach, keeping rates steady while awaiting clear economic indicators. The new PMI figures could change the RBA’s stance, moving away from neutral or dovish predictions. The market is starting to eliminate the possibility of a rate cut this year. In light of this, we should consider taking bullish positions on the Australian dollar in the coming weeks. This could mean buying near-term AUD/USD call options to take advantage of upward momentum or going long on AUD futures contracts. With the improved economic foundation, selling out-of-the-money AUD puts could also be a solid strategy to gather premium. Create your live VT Markets account and start trading now.

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