China’s Politburo recently indicated that the nation’s economic operations are stable and outlined plans for future policies. They intend to adopt active macro policies, address risks in key areas, and stabilise employment and market expectations.
They emphasise implementing active fiscal policies and maintaining a moderately loose monetary policy. Efforts will be made to build a strong domestic market and improve coordination between domestic and international economic activities in the coming year.
Australian Dollar and Chinese Economy
The Australian Dollar saw a slight increase, trading at 0.6645, with a 0.08% rise on the day. Factors affecting the Australian Dollar include interest rates set by the Reserve Bank of Australia and the health of the Chinese economy, its largest trading partner.
The Reserve Bank of Australia influences the AUD by adjusting interest rates to maintain stable inflation. The health of the Chinese economy impacts the AUD as strong economic performance in China increases demand for Australian exports.
Iron Ore prices, a major export for Australia, significantly affect the AUD’s value. A positive trade balance, which reflects strong demand for exports, can strengthen the Australian Dollar, while a negative balance can weaken it.
China’s leadership is signaling more economic support through active and looser policies, which is a clear directive to stimulate growth into the new year. This commitment to building their domestic market suggests a renewed push in construction and manufacturing. For us, this points directly to higher demand for key industrial commodities like iron ore in the coming weeks.
Australian Dollar Movements
We’ve seen iron ore prices, a crucial Australian export, find a floor around $115 per tonne in recent Q4 2025 data after a mid-year slump. This news from Beijing could be the catalyst to push prices back towards the highs we saw in early 2024, when they consistently topped $135. Traders should view this as a signal to consider long positions on commodity futures or options on miners sensitive to these price movements.
The Australian dollar, currently trading near 0.6720, is highly sensitive to Chinese economic health and commodity prices. With the Reserve Bank of Australia holding its cash rate steady at 4.35% for much of 2025, this external stimulus from Australia’s largest trading partner creates a strong case for AUD outperformance. We believe call options on the AUD/USD are an attractive way to position for potential upside, targeting a move back above the 0.69 level.
We can look back at the market recovery in 2023 for a historical parallel when similar Chinese stimulus pledges helped lift global commodity markets from their lows. During that period, even modest policy support from Beijing led to a significant rally in industrial metals and the Australian dollar. While the scale may differ, the policy direction announced by the Politburo echoes that playbook.
We must also watch for how China manages its “international economic and trade battle” mentioned in the statement. Any escalation in trade friction could dampen risk sentiment and offset the positive impact of domestic stimulus. Therefore, using defined-risk strategies like buying call spreads on the AUD could be a prudent approach to capture upside while limiting downside exposure.
