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Australian Dollar Rises on China Stimulus and Fed Rate Cut Expectations as US Dollar Weakens

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  • February 24, 2025
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The Australian Dollar is gaining strength against a weakening US Dollar as a combination of global and domestic factors alters market sentiment. A strong Chinese government policy announcement for 2025, with plans for ambitious rural reforms and detailed rural revitalization plans, has lifted confidence in Australia, as China is its major trading partner. This is compounded by news of government-sponsored developers bidding up land prices in China, a sign of renewed economic activity in the region. Locally, the Reserve Bank of Australia’s recent reduction of the Official Cash Rate by 25 basis points—the first in four years—has aided the AUD’s rebound, while Governor Michele Bullock kept inflation pressures and the direction of future rate cuts firmly in check. KEY LOOKOUTS • Watch for China’s future policy cues and rural reform implementation, as successful implementation might continue to fuel land acquisitions and raise the AUD vs. the USD. • US economic data such as PMI readings and unemployment claims remain major drivers of the USD; substantial changes might redefine the AUD/USD path. • Watch the Reserve Bank of Australia’s policy cues and possible interest rate movements, as additional loosening can fuel domestic growth and support the AUD’s bullish trend. The Australian Dollar has registered a strong bounce on hopes about China’s 2025 policy statement, which features intentions on rural reforms and a revival of the beleaguered real estate market. On the other hand, the US Dollar has come under pressure in the wake of a string of disappointing economic data points, ranging from soft PMI readings and increasing jobless claims, further fueled by policy actions from President Trump to curb Chinese investments in strategic areas. Overall, the technical picture for the AUD/USD currency pair is still positive, with the currency trading inside an uptrending channel and receiving support close to major moving averages, suggesting potentially a prolonged bout of strength for the Australian Dollar. The Australian Dollar is strengthening against a weakening US Dollar, supported by China’s strong policy announcement for 2025 of rural reforms and a rejuvenated property market, while the US is hit by weak economic data and conflicting PMI readings. • China’s 2025 policy announcement outlining rural reforms and property market stimulus boosts Australian optimism, potentially strengthening the AUD due to profound bilateral trade links. • President Trump’s order to cap Chinese investments in major U.S. industries has introduced uncertainty, impacting investor sentiment and further weakening USD performance. • Reserve Bank of Australia’s 25 basis point rate reduction—the first in four years—indicates loosening policy, but officials warn that additional cuts are uncertain amidst inflation pressures. • Downbeat U.S. economic reports, such as mixed PMI readings and increasing jobless claims, continue to weigh on the USD, affecting the overall AUD/USD exchange rate dynamics. • Federal Reserve officials say that even with strong job growth, ongoing inflation worries could require additional policy action, which could see further rate cuts this year. • Escalating U.S. trade tensions, represented by tariffs against pharmaceuticals, semiconductors, and auto parts, may interfere with global supply chains and continue affecting currency fluctuations. • AUD/USD pair in an uptrending channel, enjoys robust support levels close to the key exponential moving averages and resistance at psychological zones. The Australian Dollar is being supported by upbeat economic indications flowing from China’s forward-looking policy statement in 2025. The announcement, which outlines expansive rural reforms and steps to revive the property sector, has increased confidence in Australia markets due to its deep trade relationship with China. Additionally, the Reserve Bank of Australia’s recent move to loosen monetary policy via a rate cut indicates attempts to stimulate domestic growth, further supporting the currency. AUD/USD Daily Price Chart Chart Source: TradingView In contrast, the US Dollar is under pressure in the context of muted economic data and conservative policy expectations. Weak economic data coupled with fresh curbs on Chinese investments have added to uncertainty, casting a shadow over the US economic upturn. These events highlight the persistent issues in the US economy, leading market participants to reassess future growth opportunities and the wider implications for global trade patterns. TECHNICAL ANALYSIS          AUD/USD pair is trading near 0.6370 within an ascending channel, indicating strong bullish momentum. The 14-day Relative Strength Index (RSI) remains above 50, suggesting sustained strength, while immediate support levels are evident at the nine-day and 14-day EMAs around 0.6347 and 0.6330, respectively. This is complemented by the lower channel boundary close to 0.6320, while resistance appears around the psychological 0.6400 level and the channel’s top at close to 0.6430, highlighting levels of importance to observe in case of possible trend resumption. FORECAST In the future, the Australian Dollar may continue to gain if favorable developments continue. Favorable policy actions from China to revive its rural and property markets may further fuel trade optimism between the two countries. Moreover, accommodative domestic monetary policies in Australia may further support investor confidence and attract capital inflows, setting the stage for a continued upward trend in the AUD. On the other hand, the AUD could be challenged if negative global or domestic conditions arise. Increased uncertainty from worsening US economic numbers or growing trade tensions would modify market sentiment and lead to a conservative reassessment of risk. Additionally, any change from expected policy developments in China or changes in Australia’s fiscal position could lead to a reversal of the currency’s recent advances, underlining the need to closely watch broader economic signs.

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Currencies EUR/USD

EURUSD Bounces Back to the Highs of Almost 1.0550 After a Dive from New Yearly Lows

EURUSD Bounces Back to the Highs of Almost 1.0550 After a Dive from New Yearly Lows EUR/USD erased substantial losses after a run of five consecutive negatives, bouncing to the areas around 1.0540 during Asian trading on Friday. This followed the US Dollar Index (DXY) taking its first retreats from the newest yearly high reached at 107.06. Both dovish comments by Federal Reserve Chairman Jerome Powell and mixed US economics data influenced the move. Despite the strength in Euro, the European Central Bank still remains cautious on the economic outlook, leaving its future movements toward the pair subject to developments both in the US and the Eurozone. EUR/USD’s Recent Rebound and the Pullback in the US Dollar The currency pair EUR/USD recovered some of the losses because of a correction within the US Dollar. As the US Dollar Index (DXY) had skyrocketed to 107.06 for the year, the reversal in this upward trend for the greenback, as well as its corresponding reversal for the Euro itself, contributed to a modest rebound for the Euro, and EUR/USD advanced toward 1.0540. US Dollar Pulls Back Some of the factors behind the U.S. Dollar’s pullback have been the slowdown of so-called “Trump trades,” that had been helping the dollar out in the first half of the year. These trades-tied very closely to expectations surrounding economic policies from the previous U.S. administration-have started to lose some of their momentum as market sentiment shifts. Simultaneously, comments from Fed Chair Jerome Powell regarding the US economy lighten the tone of the US Dollar. Powell described the US economic performance as “remarkably good, thus giving Federal Reserve some leniency to slowly trim its interest rates. Contrastively, such rhetoric is diametrically opposed to the more hawkish tone that had prevailed in communications until now by the Fed, thus questioning a change in policy that should continue to weaken the Dollar at least in the short term. Mixed US Economic Data Powell’s comments came simultaneously with the release of US PPI numbers. The PPI index increased 2.4% year-over-year in October, beating the revised 1.9% of September and more than the market’s expectations of 2.3%. Meanwhile, the Core PPI for the month rose 3.1% YoY from 3.0% expectation, which eliminates food and energy prices. Although the data showed inflationary pressures were on the rise, which would play into the hands of the USD in the long run, the immediate reaction was tame because attention shifted to Powell’s more dovish talk over interest rates.The convergence of these factors saw DXY pull back, falling to around 106.80 at time of writing, providing some respite to the Euro and pushing EUR/USD higher from recent lows. EUR/USD Daily Chart Source: TradingView, by Richard Miles ECB in a Catch 22 Situation: How to Cut Rates while Tackling Inflation Though the Euro has gained a few percent against the US Dollar, European Central Bank ECB is now caught between the politics of rate cuts, and home-grown inflationary concerns. Home-grown inflationary pressures-the central issue for ECB officials-arise from the boost in wages. ECB is emphasizing more on cutting of interest rates. Showing an increased receptivity to cut rates, the central bank at the monetary policy meeting in October signaled that it was indeed turning its ears to the calls of the reducing economy. This news marks a change in tone especially since the growth fell way slower than expected, and equally, inflation data in the Eurozone remains weak. For Isabel Schnabel, an ECB board member, interest rates remain the prime instrument for policy changes but the secondary adding instruments are buys on bonds and forward guidance. While the ECB is paying increasing attention to cuts in rates, it has been quite cautious in taking concrete steps for some time now because the inflationary pressures continue unabated in the Eurozone. With hard-striving increases in wages coupled with the growth in labor productivity lagging behind, the raised fears of a wage-price spiral – where the increase in wages leads to higher prices that trigger even more wage increase in a spiral ride – belie this potential outcome working adversely for the ECB’s desired goal of putting inflation back on track. ECB Cautious on Inflationary Pressures The ECB is more sensitive to the realization that an early policy response, in this case, even some rate cuts, will mean high inflationary pressures. The central bank has thus indicated a need for more data before doing significant policy changes. The situation remains fluid, and the ECB is likely to continue monitoring the economic and inflationary landscape very carefully before making its next move. Meanwhile, the Eurozone is likely to continue struggling to find elusive momentum in growth. Most analysts think it will slow down in 2025. Cut in rates by the ECB would weaken the Euro further though the timing and full quantum of cut are still unclear. Key Economic Data to Watch The movements of the EUR/USD pair are likely to be sensitive to these upcoming data releases, especially from both the US and the Eurozone. Here are some of the key economic events and indicators to monitor in the coming days: US Economic Data US Retail Sales (October): Details about US retail sales may help explain the soundness of the US consumer-the very pulse of the whole economy. Better-than-expected retail sales can also be an additional strength for the US dollar if it translates to continued demand despite higher inflation. US CPI (Consumer Price Index): The main ‘event’ in the Dollar’s line-up will be the release of the US CPI report. In case inflation remains at these levels or even increases further, then this might lead to ideas about the Fed rate policy turnaround and hence a boost for the USD. Eurozone Economic Data Eurozone GDP Growth (Q3): The GDP data for the Eurozone will say much about its general health. Weaker growth than expected would only raise more concerns regarding the Euro outlook, while stronger growth could support the Euro in the short term.Eurozone CPI (Oct): Eurozone inflation

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