- The AUD/USD will rebound to around 0.6215 in the initial Asian session on Monday.
- China's NB was stronger than expected in February.
- Trump said he would impose an additional 10% tariff on China.
The AUD/USD pair recovers the lost ground to nearly 0.6215 and snaps a six-day losing streak during the early Asian session on Monday. Bright Chinese economic data provides some support to this pair. Later on Monday, the February Caixin Manufacturing Punchasing Managers Index (PMI) in China will be in the spotlight.
China's PMI returned to positive territory in February as the country tightened its measures to boost its economy. Data released by the China Logistics and Purchasing Federation (CFLP) on Saturday showed that the country's NBS manufacturing PMI improved to 50.2 before 49.1 in February. This figure is stronger than the expected 49.9. Meanwhile, NBS's non-manufactured PMI rose from 50.2 to 50.4 from January 50.2, breaking its 50.3 estimate.
China's PMI report lifted the Chinese Proxy Australian Dollar (AUD) as China is Australia's leading trading partner. However, tariffs imposed by the US may threaten to mask manufacturing recovery and increase the benefits of AUD.
US President Donald Trump said another 10% tariffs would be imposed on Chinese imports starting Tuesday, worsening the first 10% rate that came into effect last month. Increasing trade tensions between the US and China could boost safe home flows and benefit the US dollar (USD) in the near future.
Australian Dollar FAQ
One of the most important factors in the Australian Dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another important factor is the price of iron ore, the biggest export. The health of China's biggest trading partner is Australia's inflation, its growth rate and trade balance. Market sentiment – Whether investors are taking on riskier assets (risk-on) or seeking safe haven (risk-off) is another factor in risk-on positive for AUD.
The Reserve Bank of Australia (RBA) affects the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This affects the level of interest rates across the economy. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up and down. Compared to other major central banks, relatively high interest rates support AUD, the opposite of relatively low. RBAs can also use quantitative relaxation and tightening to influence credit conditions, along with previous Aud negative and the latter positives.
As China is Australia's largest trading partner, the health of China's economy has a major impact on the value of the Australian Dollar (AUD). If the Chinese economy is on track, they will buy more raw materials, goods and services from Australia, raising demand for AUD and increasing its value. The opposite is when the Chinese economy is not growing as fast as expected. Therefore, positive or negative surprises in China's growth data often have a direct impact on the Australian dollar and its pair.
Iron ore is Australia's largest export, with China as its main destination accounting for $118 billion a year, according to data from 2021. Therefore, iron ore prices could be a driver for the Australian dollar. Generally, as iron ore prices rise, so does AUD as aggregate demand for the currency increases. If iron ore prices fall, the opposite is true. Also, higher iron ore prices tend to be more likely to be positive for Australia's trade balance, which is also positive for AUD.
Trade balances, the difference between what a country acquires from exports and what it pays for imports, are another factor that can affect the value of the Australian Dollar. If Australia produces a very popular export, the currency acquires pure value from the surplus demand generated from foreign buyers seeking to purchase the export, compared to what they spend to buy the import. Therefore, a positive net trade balance strengthens the AUD and has the opposite effect if the trade balance is negative.
