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Australian Dollar's future: Critical indicators shaping the AUD's direction

Denis Joeli Fatiaki Independent Analyst

A deep dive into commodity dependency, chinese economic trends, and market movements

The Australian Dollar (AUD), a commodity-driven currency, heavily relies on China as its largest trading partner. This mutually beneficial relationship fuels both economies. China's industrial, retail, and property sectors depend on Australia's rich mineral resources, particularly iron ore, which are essential for steel production. Likewise, the Australian economy's stability hinges on revenues generated from exporting these resources to China. Alongside these dynamics, external factors like the strong US dollar significantly impact AUD/USD

China's economic performance: Implications for Iron Ore demand

Recent developments in China's economy have important ramifications for Australian mineral exports, especially iron ore:

GDP growth acceleration: As reported by News.com, China's GDP growth surged to 5.4% in the December quarter, exceeding expectations. This robust economic expansion has reignited commodity demand, providing tailwinds for Australian mining companies.
Stabilizing property sector: The Financial Times highlighted signs of stabilization in China's property market, with improvements in home sales and prices noted in the data. Since property construction is a significant driver of steel consumption, this stabilization reinforces the potential steady demand for iron ore.

Market insights from key resource ETFs

ETFs like QRE and OZR, which track the S&P/ASX 200 Resources Index, serve as barometers for the health of the Australian resources sector. These indices' performance offers insights into potential movements in the Australian Dollar:

QRE ETF performance: The QRE ETF closed this week (January 18, 2025) with gains exceeding 3%. While this marks positive momentum, the ETF remains below its resistance at $7.06, hinting at potential hurdles ahead.
OZR ETF highlights: The OZR ETF enjoyed an eight-session rally, rebounding sharply from its $11.56 support level and posting gains of over 4%. However, it faces critical resistance at around $12.22, with secondary support at around $11.97.

QRF ETF price chart performance from 2021 to Jan 18 2025

OZR ETF price chart performance from 2023 to Jan 18 2025

AUD/USD analysis: A tug-of-war influencing direction

The US dollar's pullback to 108.53, following its breakout at 109.37, provided some breathing room for the Australian Dollar. In response, the AUD/USD rebounded from $0.6137 to $0.6239 before closing below the pivotal $0.6200 level at the end of the week.

Key levels to watch:

Resistance: $0.6299

Support: $0.6137

If the US dollar resumes its uptrend and retests 109.37, bearish pressure on the AUD could intensify. Conversely, stabilization in resource prices and Chinese demand could support the currency.

The US Dollar (DXY) recent pullback to 108.53 and heading back up towards 109.37 zone.

The Australian Dollar (AUD/USD) fell to the 0.6137 support zone indicated in the Jan 10 analysis

The Australian Dollar (AUD/USD) bounced off from the 0.6137 support zone, ending the week below the critical 0.6200 level.

Conclusion: Clues to watch in January's second half

As January crosses its midpoint, the Australian Dollar remains without a clear directional bias. Key data points to monitor include:

Developments in China's property market.
Iron ore price trends and ETF performance.
USD strength and global risk sentiment.

The interplay of these factors will determine whether the AUD/USD pair can sustain a breakout or remain under bearish pressure. Investors should observe the $0.6299 to $0.6137 range for potential signals of the currency's future trajectory.

Author

Denis Joeli Fatiaki

Independent Analyst

Denis Joeli Fatiaki possesses over a decade of extensive experience as a multi-asset trader and Market Strategist.

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