AUD/USD recovers above 0.6200 on upbeat Chinese PMI data
- AUD/USD rebounds to around 0.6215 in Monday’s early Asian session.
- China's NBS came in stronger than expected in February.
- Trump said he will impose an additional 10% tariff on China.
The AUD/USD pair recovers some lost ground to near 0.6215, snapping the six-day losing streak during the early Asian session on Monday. The upbeat Chinese economic data provides some support to the pair. Later on Monday, China’s February Caixin Manufacturing Purchasing Managers Index (PMI) will be in the spotlight.
China's PMI returned to positive territory in February as the country ramped up measures to boost its economy. Data released by the China Federation of Logistics and Purchasing (CFLP) on Saturday showed that the country’s NBS Manufacturing PMI improved to 50.2 in February versus 49.1 prior. This figure came in stronger than the 49.9 expected. Meanwhile, the NBS Non-Manufacturing PMI climbed to 50.4 in February from 50.2 in January, beating the estimation of 50.3.
The encouraging Chinese PMI report has lifted the China-proxy Australian dollar (AUD) as China is a major trading partner to Australia. However, tariffs imposed by the United States threaten to overshadow the manufacturing recovery and might cap the AUD’s upside.
US President Donald Trump has said that an additional 10% tariff will be placed on Chinese imports starting Tuesday, compounding the initial 10% rate that took effect last month. Escalating trade tensions between the US and China could boost the safe-haven flows and benefit the US Dollar (USD) in the near term.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
