Australian Dollar holds gains following Caixin China Services PMI

• The Australian Dollar holds gains following the PMI data release on Monday.
• The Caixin China Services PMI increased to 52.2 in December 2024, up from the previous reading of 51.5.
• The US Dollar Index hovers near 109.00, close to recent highs.

The Australian Dollar (AUD) extends its gains for the third successive session against the US Dollar (USD) on Monday. The AUD/USD appreciates as the AUD gains support following the release of the Judo Bank Australia Purchasing Managers' Index (PMI) and the Caixin Services PMI for China, its key trading partner.

The Judo Bank Australia Composite PMI for December 2024 was revised upward to 50.2 from the previous reading of 49.9, indicating a third consecutive month of marginal growth in private sector output. This expansion was driven by the services sector, as manufacturing output continued to contract. Meanwhile, the Services PMI was revised higher to 50.8, up from 50.5 in November, marking the eleventh consecutive month of growth in the services sector.

The Caixin China Services Purchasing Managers' Index (PMI) rose to 52.2 in December 2024, up from 51.5 in November, exceeding market expectations of 51.7. This marks the fastest growth in the services sector since May. Meanwhile, the Caixin Manufacturing PMI, released on Thursday, unexpectedly fell to 50.5 in December, down from 51.5 in November, missing market forecasts of 51.7.

According to Reuters, the Shanghai Stock Exchange has committed to deepen capital markets opening during a meeting with foreign institutions. China's economy is underpinned by solid fundamentals and demonstrates resilience amid a complex global environment. The Financial Times reported on Friday that the People's Bank of China (PBoC) anticipates an interest rate cut at an appropriate time this year. Given their close trade relationship, fluctuations in China's economy often have a notable impact on Australian markets.

Australian Dollar advances despite a stronger US Dollar amid Fed's hawkish policy shift

• The US Dollar Index (DXY), which measures the US Dollar's (USD) performance against six major currencies, holds its position near 109.00.
• The US ISM Manufacturing PMI improved to 49.3 in December, from 48.4 in November. This reading came in better than the market expectation of 48.4.
• The US Initial Jobless Claims for the week ending December 27 have come in lower than expected. Individuals claiming jobless benefits for the first time were 211K, lower than estimates of 222K and the former release of 220K.
• Traders are cautious regarding President-elect Trump's economic policies, fearing that tariffs could increase the cost of living. These concerns were compounded by the Federal Open Market Committee's (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
• Escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine war are likely to support the USD, a traditional safe-haven currency, in the near term. Analysts at Action Economics observed, "The greenback has been boosted by rising growth concerns elsewhere against the backdrop of geopolitical risk."
• The National Development and Reform Commission (NDRC), China's state planner, expressed confidence in achieving continued economic recovery in 2025. In a statement on Friday, it highlighted plans to significantly increase funding from ultra-long treasury bonds to support "two new" programs, with expectations for steady consumption growth throughout the year.

Technical Analysis: Australian Dollar tests 14-day EMA ahead of 0.6250

The AUD/USD pair trades near 0.6230 on Monday, maintaining a bearish outlook as it continues to move within a descending channel on the daily chart. However, the 14-day Relative Strength Index (RSI) climbs above the 30 level, indicating a potential weakening of bearish momentum, despite the ongoing downtrend.

On the upside, the AUD/USD tests immediate resistance at the 14-day Exponential Moving Average (EMA) at 0.6243, followed by the descending channel's upper boundary, around the psychological mark of 0.6300.

Regarding its support, the AUD/USD pair could navigate the region around the lower boundary of the descending channel, around 0.6020.

AUD/USD: Daily Chart