AUD/USD trades close to the 0.6700 mark on Monday, posting modest gains of around 0.10% after recovering from earlier intraday weakness. The pair rebounded following the release of US PMI data, with the Australian Dollar showing resilience despite a mixed global macroeconomic environment.
Developments from China continue to play a key role in shaping sentiment toward the Aussie. Recent data from RatingDog indicated that China’s Services PMI eased slightly to 52.0 in December from 52.1 previously, signaling a mild slowdown in service-sector momentum. In contrast, the Manufacturing PMI improved marginally to 50.1 from 49.9, moving back into expansion territory. While the improvement is modest, it helps ease concerns about a deeper slowdown in Chinese industrial activity. Given China’s position as Australia’s largest trading partner, even small shifts in Chinese economic indicators can have an outsized impact on the Australian Dollar.
Domestically, expectations around Australian monetary policy remain a key source of support for the currency. Investors are increasingly focused on Australia’s fourth-quarter Consumer Price Index (CPI) report, scheduled for release on January 28. A firmer-than-expected core inflation reading could strengthen the case for policy tightening at the Reserve Bank of Australia’s (RBA) February 3 meeting. Although RBA Governor Michele Bullock recently emphasized that an immediate rate hike was not explicitly discussed, she acknowledged that the board considered scenarios under which tighter policy might become necessary, keeping hawkish expectations alive.
On the US side, the US Dollar initially found support from safe-haven flows amid renewed geopolitical tensions in Latin America, particularly following developments involving Venezuela. However, the Greenback’s momentum faded after the release of weaker US manufacturing data. The ISM Manufacturing PMI declined for a third straight month to 47.9 in December, underscoring an accelerating contraction in the sector. The decline was driven mainly by weaker production and inventories, while price pressures remained elevated. Although New Orders and Export Orders improved slightly, the broader picture points to ongoing softness in US industrial activity.
Markets continue to price in two additional Federal Reserve rate cuts in 2026, though recent FOMC minutes suggested several officials favor pausing further easing if inflation continues to cool gradually. Political uncertainty also remains in focus, with investors watching closely for US President Donald Trump’s potential nomination of a new Fed Chair once Jerome Powell’s term ends, a development that could influence the longer-term policy outlook.
Trade Idea:
Consider buying AUD/USD on dips toward 0.6650, targeting 0.6750, with a stop below 0.6600, supported by RBA tightening expectations and stabilizing China data.