AUD/USD extends winning streak as Trump’s China deal hints weigh on USD

Pair jumps 0.42% to 0.6315 on Friday, buoyed by broad risk appetite.
Trump expresses willingness to avoid tariffs on China, offers trade deal hints.
Fed rate cut bets and upbeat sentiment pressure the US Dollar.
Traders assess the latest US PMI data amid a potential shift in risk dynamics.

Patricio Martín FXStreet

AUD/USD attracted buyers on Friday after President Trump suggested a trade agreement with China remains within reach, reinforcing a risk-on mood. The pair advances to 0.6315, heading for its first weekly gain in three weeks. Meanwhile, renewed speculation regarding additional Federal Reserve (Fed) rate cuts in 2025 continues to undermine the US Dollar, providing an added lift to the Aussie.

Daily digest market movers: Aussie continues its recovery as USD remains soft

The Greenback falls to a one-month trough as markets price in the prospect of further Fed easing by year-end. In addition, President Trump’s statements about immediate interest rate cuts contribute to the latest downside in the USD.
The Reserve Bank of Australia’s (RBA) possible rate cut in February and subdued economic growth might limit the Aussie’s upside.
On the US front, the S&P Global Composite PMI decelerates to 52.4 from 55.4, with Manufacturing climbing to 50.1 and Services dipping to 52.8. Analysts note rising optimism in the manufacturing sector, expecting supportive policies under the Trump administration.
The US President signals reluctance to levy tariffs on China, citing that a trade pact could be finalized. He also reiterates grievances about trade deficits with various nations, including Canada, while calling on OPEC to lower crude oil prices.

AUD/USD technical outlook: Short-term signals turn more upbeat, hinting at potential breakout

The AUD/USD has advanced to 0.6315 on Friday, extending its recent winning streak and edging closer to 0.6330. In the short term, technicals lean constructive: the Moving Average Convergence Divergence (MACD) histogram prints rising green bars, suggesting a budding shift toward bullish momentum. The Relative Strength Index (RSI) stands at 58 and is rising sharply, indicating robust upside pressure.

This combination implies the pair may be on the verge of a more meaningful rebound. A decisive break above 0.6330 would confirm a broader turnaround.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Author

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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