The Australian dollar falls on growing concerns about China’s economic outlook

VaselineSeptember 17, 2024

0 5 minutes read

The Australian dollar falls on growing concerns about China’s economic outlook

The Australian dollar depreciated as analysts noted weak economic data pointed to serious challenges to China’s economic outlook.
The Aussie’s downside could be curbed by dovish sentiment around the Reserve Bank of Australia’s policy outlook.
The US dollar is struggling on increasing chances that the Federal Reserve will implement a higher interest rate cut on Wednesday.

The Australian dollar (AUD) regained recent gains against the US dollar (USD) on Tuesday, largely on growing concerns about the health of China’s economy. Analysts point out that the latest round of weak economic data points to serious challenges for the world’s second largest economy. As China is a key trading partner for Australia, fluctuations in China’s economic health can have a significant effect on the Australian market.

Economists at Goldman Sachs and Citi cut their forecasts for China’s GDP growth in 2024 to 4.7 percent, missing Beijing’s target of around 5.0 percent. SocGen describes the situation as a “downward spiral”, while Barclays calls it “from bad to worse” and a “vicious circle”. Morgan Stanley also warns that “things could get worse before they get better,” according to a Reuters report.

AUD/USD’s downside may be limited as the Australian dollar remains supported by the Reserve Bank of Australia’s (RBA) dovish stance. Meanwhile, the US dollar is under pressure amid growing expectations that the US Federal Reserve (Fed) may implement an aggressive 50 basis point interest rate cut on Wednesday.

According to the CME FedWatch tool, markets anticipate a 38.0% chance of a 25 basis point (bps) rate cut by the Fed at its September meeting. The probability of a 50 bps rate cut rose to 62.0% from 50.0% a day ago.

Daily Digest Market Movers: Aussie inches lower on China outlook fears

ANZ-Roy Morgan Consumer Confidence rose 1.8 points to an eight-week high of 84.1. While ANZ notes that growth has been broad-based, confidence remains firmly in pessimistic territory.
The University of Michigan’s consumer sentiment index rose to 69.0 in September, beating market expectations of a 68.0 reading and marking a four-month high. The increase reflects a gradual improvement in consumers’ outlook for the US economy after months of declining economic expectations.
China’s economy weakened in August, with industrial activity continuing to slow and property prices falling, as Beijing faces mounting pressure to boost spending to boost demand. According to Business Standard, this was reported by the Office for National Statistics on Saturday.
China’s retail sales rose 2.1 percent year-on-year in August, slowing from 2.7 percent the previous month and falling short of the market consensus of 2.5 percent.
The US producer price index (PPI) rose 0.2% month-on-month in August, beating the forecast 0.1% rise and the previous 0.0%. Meanwhile, the core PPI accelerated to 0.3% on the month, versus the expected 0.2% increase and July’s contraction of 0.2%.
Australian consumer inflation expectations fell to 4.4% in September, down slightly from August’s peak of 4.5%. This decline highlights the central bank’s efforts to balance reducing inflation within a reasonable timeframe and maintaining gains in the labor market.
The Reserve Bank of Australia (RBA) has maintained a dovish stance, with RBA Governor Michele Bullock saying it is premature to consider rate cuts due to persistently high inflation. RBA Assistant Governor Sarah Hunter also noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical analysis: Australian dollar climbs to 0.6750; the next barrier at the seven-month high

AUD/USD is trading near 0.6750 on Tuesday. Technical analysis of the daily chart indicates that the pair has broken above the upper limit of a descending channel, indicating a weakening of a bearish bias. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly above the 50 level, suggesting a change in momentum from a bearish to an uptrend.

On the upside, a break above the descending channel has triggered an uptrend for the AUD/USD pair. This could push the pair towards its seven-month high of 0.6798 and test the psychological level of 0.6800.

On the downside, AUD/USD could find immediate support around the nine-day EMA at 0.6719, followed by the upper limit of the descending channel at 0.6690. A return to the descending channel would strengthen the bearish trend and lead the pair to navigate the region around the reversal support area near 0.6575, followed by the lower limit of the descending channel at the 0.6550 level.

AUD/USD: Daily chart

Australian Dollar PRICE Today

The table below shows the percentage change of the Australian Dollar (AUD) against the major listed currencies today. The Australian dollar was the weakest against the Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.05%	0.08%	-0.10%	0.03%	0.00%	0.18%	-0.05%
EURO	-0.05%		0.03%	-0.16%	-0.06%	-0.06%	0.12%	-0.10%
GBP	-0.08%	-0.03%		-0.19%	-0.06%	-0.08%	0.10%	-0.15%
JPY	0.10%	0.16%	0.19%		0.14%	0.12%	0.30%	0.05%
CAD	-0.03%	0.06%	0.06%	-0.14%		-0.02%	0.17%	-0.09%
AUD	-0.01%	0.06%	0.08%	-0.12%	0.02%		0.17%	-0.08%
NZD	-0.18%	-0.12%	-0.10%	-0.30%	-0.17%	-0.17%		-0.25%
CHF	0.05%	0.10%	0.15%	-0.05%	0.09%	0.08%	0.25%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Australian dollar in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be AUD (base)/USD (quote).

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 biggest trading partner, is a factor, as well as 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 for 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.

VaselineSeptember 17, 2024

0 5 minutes read