Australian Dollar Weekly Forecast: Will China’s PMI Data Lift AUD/USD Above $0.63?

Aussie Dollar Suffers 4-Week Losing Streak – What traders need to watch next!

In the week ending December 27, the AUD/USD pair declined by 0.57%, closing at $0.62112. The pair climbed to a Monday high of $0.62646 before dropping to a Friday low of $0.62002. The AUD/USD extended its losing streak to four weeks.

China’s PMI Data: A Test of Beijing’s Stimulus Measures

China’s private sector will be under scrutiny on Tuesday, December 31. Economists forecast China’s NBS Manufacturing PMI to remain at 50.3 in December while projecting a modest rise in the Non-Manufacturing PMI.

Better-than-expected PMI data could reflect the effectiveness of Beijing’s stimulus measures and AUD/USD forecasts. However, markets may need the PMIs to move clear of 50 to confirm stronger economic activity.

PMI impact: Improved private sector activity could enhance Aussie trade terms, given China accounts for one-third of Australian exports. With a trade-to-GDP ratio above 50%, increased demand from China could boost the Aussie economy and Aussie dollar demand.

However, weaker data might signal a need for more stimulus from Beijing, potentially impacting risk sentiment and Aussie dollar demand.

In December, RBA Governor Michele Bullock highlighted the significance of China’s economy, saying,

“US moves against China could affect Aussie trade terms with China, potentially impacting the Aussie economy.”

Key Drivers: The Caixin PMI and Its Impact

China’s more influential Caixin Manufacturing PMI will draw interest on Thursday, January 2. Economists expect the PMI to increase from 51.5 in November to 51.7 in December. A higher-than-expected PMI could fuel Aussie dollar demand, reflecting optimism toward Australia’s trade outlook.

Increased demand for Aussie goods could also improve labor market conditions, with 20% of the Australian workforce in trade-related jobs. Tighter labor market conditions may support wage growth, driving consumer spending and inflationary pressures.

Conversely, an unexpected fall in the PMI could weigh on the AUD/USD and the broader economy.

Other stats include Australia’s finalized Judo Bank Manufacturing PMI. However, this will likely play second fiddle to China’s data.

Comparing the NBS and Caixin Surveys: Key Differences

Investors should note crucial differences between the NBS and Caixin Surveys:

• NBS surveys a larger sample size, around 3,000 firms vs. 500 firms in the Caixin survey.
• The NBS PMI gives greater weight to large SOEs (state-owned enterprises) and larger companies. In contrast, the Caixin survey focuses more on small to medium-sized private companies.
• The NBS PMI considers firms across China, while the Caixin PMI concentrates on China’s coastal regions, where private firms are more prevalent.
• The Caixin PMI may better gauge private sector trends, while the NBS PMI captures overarching industrial performance.

Potential AUD/USD Responses to China’s PMIs

Stronger-than-expected PMI data could drive the AUD/USD pair toward $0.63 and the $0.63623 resistance level. However, a contraction in China’s private sector may drag the AUD/USD to the lower trend line, potentially bringing sub-$0.61 into sight.

For a comprehensive analysis of AUD/USD trends and trade data insights, visit our detailed reports here.

US Economic Calendar: Key Data in Focus

Turning to the US, housing sector data will draw interest early in the week. Economists view the housing market as a litmus test of the US economy.

Upward trends in pending home sales and house prices may fuel housing services inflation. A higher inflation outlook would support the Fed’s less dovish rate path outlook, driving US dollar demand. Conversely, a pullback in housing demand and prices may dampen housing services inflation, supporting a more dovish Fed rate path.

US jobless claims, due Thursday, will impact sentiment toward a Q1 2025 Fed rate cut. Economists expect initial jobless claims to increase from 219k (week ending December 21) to 223k (week ending December 28).

An unexpected drop would reduce bets on a Q1 2025 Fed rate cut. Tighter labor market conditions might support wage growth and consumer spending. Higher spending could push inflation higher, suggesting a less dovish Fed rate path. On the other hand, a spike in claims may signal a softening labor market, dampening wage growth, and inflationary pressures.

On Friday, the ISM Manufacturing PMI will provide insights into demand conditions. Economists predict the ISM Manufacturing PMI will slip from 48.4 in November to 48.3 in December. A surprise rise above 50 could indicate economic resilience. However, an unexpected decline could suggest weaker demand, supporting a Q1 2025 Fed rate cut.

Fed commentary will also be crucial. Discussions on inflation, the labor market, and the Fed rate path could move the dial.

Short-Term Forecast:

The near-term trend for the AUD/USD will depend on the PMI data and Fed commentary. Weak PMI data from China, upbeat data from the US, and hawkish Fed comments could drag the AUD/USD pair toward $0.60. Conversely, positive PMI from China and more stimulus details from Beijing may support a recovery toward $0.63.

Investors should also monitor US tariff developments, which could impact global trade terms.

Economic indicators from Australia and the US will be crucial for the AUD/USD pairing. View our latest updates and insights here to navigate the Forex markets effectively.

AUD/USD Price Action

Daily Chart

After a four-week losing streak, the AUD/USD remains below the 50-day and 200-day EMAs, sending bearish price signals.

An Aussie dollar return to $0.62500 could signal a move toward the upper trend line and the $0.63623 resistance level. Selling pressure could intensify at the resistance level because the upper trend line is confluent with it. If the AUD/USD pair breaks above the upper trend line, the pair could target the 50-day EMA next.

Private sector PMIs, Fed chatter, stimulus-related updates from Beijing, and tariff news require consideration.

Conversely, an AUD/USD drop below $0.62 could bring the lower trend line into sight. If the pair breaks below the lower trend line, the bears may target sub-$0.61 levels.

With a 14-period Daily RSI reading of 26.91, the AUD/USD sits in oversold territory (RSI less than 30). Buying pressure could intensify at Friday’s $0.62002 low.