AUD/USD rises after positive China data

• AUD/USD rises after the release of better-than-expected macroeconomic data from China, its largest trading partner.
• However, Chinese property risk continues to undermine iron ore, Australia's biggest export.
• The week promises volatility as both the Australian and US central banks hold monetary policy meetings.

He AUD/USD is rising, trading at 0.6570 on Monday, following the release of strong Chinese data that showed better-than-expected growth in industrial production, retail sales and fixed asset investment in February.

The data improves the prospects for Australia's largest trading partner, but is not enough to provide an antidote to the Chinese property sector's woes. Construction is also more influential on the Australian Dollar (AUD) because Chinese property developers are the main buyers of Australian iron ore, which they use to make steel for large construction projects.

These issues are reflected in a continued decline in iron ore prices, which have fallen from more than $140 per ton in early 2024 to around $102.50 at the time of publication. Iron ore is Australia's main export, and a drop in prices translates into a drop in demand for the Australian dollar (AUD), needed to buy it.

AUD/USD could suffer volatility in an important week for central banks

An important week for AUD/USD begins on Monday, with both the Reserve Bank of Australia (RBA) and the US Federal Reserve (Fed) scheduled to hold monetary policy meetings, with important implications. for the exchange rate.

The RBA will announce the outcome of its meeting on Tuesday at 03:30 GMT. Although inflation in Australia has progressed adequately – falling from 5.4% to 4.1% in February – it is still far from the RBA's target and no change in the cash rate is expected. However, according to Commerzbank analysts, there is a possibility that the bank will remove the need for a further interest rate hike from the accompanying statement, which could benefit the Australian dollar (and AUD/USD).

The Fed will announce its decision on Wednesday at 6:00 p.m., and no changes to the federal funds rate are expected either. However, recent stronger-than-expected inflation suggests the possibility that the Fed's Summary of Economic Projections (SEP) will change the number of interest rate cuts that members foresee for 2024.

In the last SEP in December, policymakers expected three 0.25% cuts to occur in 2024, however Bloomberg analysts are predicting the possibility of that number falling to two in the new dot chart. This change would be bullish for the USD (negative for AUD/USD).