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Downward pressure on the Chinese economy is increasing

The National Development and Reform Commission (NDRC), China’s state planner, said on Tuesday that “downward pressure on China’s economy is increasing”.

Supplementary food

China’s economy is largely stable.

China’s economy faces more complex internal and external environments.

Market expectations have improved following the adoption of a new policy.

Fully confident of achieving economic and social development goals throughout the year.

It will promote sustained, stable and healthy economic development in 2024, 2025…

It will expand domestic demand, give priority to consumption.

It will strive to stimulate the capital markets.

It will promote economic recovery.

Market reaction

Even as Chinese markets reopened with a bang, the AUD/USD pair came under intense selling pressure amid risk aversion. China’s economic concerns continue to remain a drag on the Chinese proxy Australian dollar. At the time of writing, AUD/USD was down 0.25% on the day, trading near 0.6735.

Australian Dollar FAQ

One of the most important 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 factor is the price of its biggest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is Australia’s inflation, growth rate and trade. Balance. Market sentiment – ​​whether investors are taking riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk positive for the AUD.

The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main aim 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 is relatively low. The RBA can also use quantitative easing and tightening to influence lending conditions, the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner, so the health of the Chinese economy has a major influence on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, increasing 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. Therefore, positive or negative surprises in China’s growth data often have a direct impact on the Australian dollar and its pairs.

Iron ore is Australia’s biggest export, accounting for $118 billion a year, according to 2021 data, with China as the main destination. Therefore, the price of iron ore can be a driver of the Australian dollar. Generally, if the price of iron ore rises, so does the AUD, as aggregate demand for the currency rises. The opposite is true if the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.

The balance of trade, 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 only gain in value from the excess demand created by foreign buyers wanting to buy its exports over what it spends on buying its imports. A positive net trade balance therefore strengthens the AUD, with the opposite effect if the trade balance is negative.

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