China has announced plans for a more active fiscal policy in 2026 to support its economy amid external challenges. The Ministry of Finance intends to boost investment in areas like advanced manufacturing, technology, and workforce development. This decision follows a fiscal policy meeting that set the agenda for the upcoming year. The AUD/USD pair saw a slight increase of 0.02%, trading at 0.6716. Key factors influencing the Australian Dollar (AUD) include the interest rates set by the Reserve Bank of Australia (RBA) and iron ore prices, which are vital since iron ore is Australia’s top export. Additionally, China’s economy plays a significant role as it is Australia’s largest trading partner.

The Role Of Reserve Bank Of Australia

The Reserve Bank of Australia influences the AUD by changing interest rates to keep inflation between 2-3%. Higher interest rates typically support the AUD, while lower rates have the opposite effect. The RBA’s quantitative measures can also impact the currency’s value. China’s economic health greatly affects the AUD. Strong growth in China usually increases demand for Australian exports, therefore boosting the AUD. Since iron ore prices are crucial for the AUD’s strength, increases in these prices generally lead to a stronger AUD. A positive trade balance, driven by higher export demand, also supports the AUD. As of December 29, 2025, China’s commitment to ongoing fiscal support in 2026 is an important development for the new year. This proactive approach indicates that Beijing is focused on stabilizing its economy, which is good news for its main trading partners. We should consider positioning for a stronger Australian dollar in the coming weeks. This stimulus is essential, especially since China’s economy has shown some mixed signals lately. For example, the official manufacturing PMI for November 2025 was at 49.0, indicating ongoing challenges in the sector. This new fiscal initiative aims to address that weakness and stabilize growth going into 2026.

Impact Of Chinese Economic Policies

This situation directly boosts the demand for industrial commodities, particularly iron ore. Recently, iron ore prices have surged to around $138 per ton, marking a significant increase from earlier this year. China’s commitment to increasing investment in manufacturing and infrastructure should help maintain these prices, benefiting Australian export revenues. Support for the AUD comes at a time when the Reserve Bank of Australia is maintaining a hawkish approach. With inflation in Australia holding steady at 5.2% in the third quarter of 2025, the RBA has kept its cash rate at 4.10%. This relatively high interest rate enhances the currency’s appeal. Given this context, we should consider bullish positions using derivatives, such as buying AUD/USD call options with expirations in late January or February 2026. Current market volatility is low, making option premiums attractively priced for potential gains. This strategy allows us to benefit from a stronger Australian dollar while clearly managing our risk. Looking ahead, it’s important to keep an eye on the details of China’s spending plans as they are revealed. Confirmation of significant investments in heavy industry would further support this optimistic outlook. Conversely, any uncertainty in Beijing’s commitment or a sharp fall in commodity prices would prompt a reassessment of our position. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now