Australian Dollar holds gains as US Dollar remains subdued ahead of ISM Manufacturing PMI

• The Australian Dollar rises as the Financial Times reported that the PBoC is signaling potential rate cuts this year.
• The AUD recovered from two-year lows as stronger commodity prices provided support, particularly Oil and Gold.
• The US Dollar Index corrects downwards from a new multi-year high of 109.56 reached on Thursday.

The Australian Dollar (AUD) extends its gains for the second successive session against the US Dollar (USD) on Friday. The AUD gained support following a Financial Times report stating that the People's Bank of China (PBoC) expects an interest rate cut this year at an appropriate time. As close trade partners, any fluctuations in China's economy tend to impact Australian markets. Traders will likely observe the ISM US Manufacturing Purchasing Managers Index (PMI) for December 2024 due later in the North American session. 

The National Development and Reform Commission (NDRC), China's state planner, expressed confidence in achieving continued economic recovery in 2025. In a statement on Friday, it highlighted plans to significantly increase funding from ultra-long treasury bonds to support "two new" programs, with expectations for steady consumption growth throughout the year.

The AUD/USD pair appreciates as the Australian Dollar recovers from two-year lows as stronger commodity prices provide support, particularly Oil and Gold, benefiting Australia’s position as a major exporter of these key resources. Oil and Gold stocks saw notable gains including Woodside Energy and Northern Star Resources.

The Aussie Dollar received support after the Caixin Manufacturing Purchasing Managers’ Index (PMI) from China was released on Thursday. Wang Zhe, an economist at Caixin Insight Group, commented, “Supply and demand expanded. Manufacturers’ output and demand continued to grow as the market improved. The gauge for output remained in expansionary territory for the 14th consecutive month, while total new orders increased for the third straight month.”

Daily Digest Market Movers: Australian Dollar strengthens despite Fed's hawkish policy shift

• The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, climbed to a fresh multi-year high of 109.56 following the Jobless Claims in the United States (US) on Thursday before easing slightly to trade around 109.10 at the moment of writing.
• The US Initial Jobless Claims for the week ending December 27 have come in lower than expected. Individuals claiming jobless benefits for the first time were 211K, lower than estimates of 222K and the former release of 220K.
• Traders are cautious regarding President-elect Trump’s economic policies, fearing that tariffs could increase the cost of living. These concerns were compounded by the Federal Open Market Committee’s (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
• Escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine war are likely to support the USD, a traditional safe-haven currency, in the near term. Analysts at Action Economics observed, “The greenback has been boosted by rising growth concerns elsewhere against the backdrop of geopolitical risk.”
• China's Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, down from 51.5 in November. The market had anticipated a reading of 51.7 for the month.
• The RBA board noted that if future data aligns with or falls below forecasts, it would bolster confidence in inflation and make it appropriate to start easing policy restrictions. However, stronger-than-expected data could require maintaining restrictive policies for a longer period.
• Reserve Bank of Australia Governor Michele Bullock highlighted the continued strength of the labor market as a key reason the RBA has been slower than other nations to commence its monetary easing cycle.

Technical Analysis: Australian Dollar holds position above 0.6200 near nine-day EMA

AUD/USD trades near 0.6210 on Thursday, maintaining a bearish outlook as it remains within a descending channel on the daily chart. However, the 14-day Relative Strength Index (RSI) has bounced back above the 30 level, suggesting the potential for a near-term upward correction despite the prevailing downtrend.

The AUD/USD pair may find immediate resistance at the nine-day Exponential Moving Average (EMA) at 0.6220, with the next obstacle at the 14-day EMA at 0.6244. A key resistance level is the descending channel’s upper boundary, around the psychological mark of 0.6300.

Regarding its support, the AUD/USD pair could navigate the region around the lower boundary of the descending channel, around 0.6020.

AUD/USD: Daily Chart