AUD/USD Exchange Rate Fluctuates: Australian Economy increasingly Dependent on China
Investors have regained some of the lost confidence in the US Dollar after the somewhat disappointing job figures released Friday during the offshore session making it to a low overnight of 86.05 US Cents.
The Australian Dollar US Dollar Exchange Rate (AUD/USD) managed to drop to a four year low late last week to 85.65 US Cents. This was attributed to continued weakness in commodity pricing and positive sentiment following from the Federal Open Market Committee Meeting (FOMC) where The Fed took a hawkish stance on their outlook for the US labour market.
The hawkish statements by The Fed gave investors high expectations and Friday saw the release of uninspiring job figures. The unemployment rate for the US was an improvement from the forecast, with a result of 5.8%. Significantly though was the negative sentiment upon the news that only 214,000 jobs were added for October, versus investors expectations of 235,000 new jobs. This result failed to impress investors, giving the AUD a lift yesterday against the USD. This lift, however, has proven to be short-lived as whatever small gains were made have been given back before the commencement of today’s session.
Movements by the AUD for the early part of this week will be China based with no high level data out of Australia. As Australia’s largest trading partner, the strength of the AUD is increasingly impacted by Chinese data as the Australian economy becomes increasingly dependent on the strength of China. The Chinese economy grew at a rate of 7.3 percent for the third quarter, the lowest result they have posted for 5 years.
Yesterday saw the release of China’s October’s Consumer Price Index (CPI) which came in line with expectation and the previous month was a figure of 1.6%, one of the lowest readings recorded for their economy for some years. The Producer Price Index (PPI) was also released showing a disturbing result of a 2.2% reduction year-on-year in October. Qu Hongbin and Jing Li from HSBC commented that ‘The low inflation reading, low capacity utilisation and excessive inventories all indicate that the economy is now operating below its potential’.
Further focus is on the relationship between China and Australia with the discussion surrounding the finalisation of the Free Trade Agreement which is concerning some experts with the economic outlook for China appearing to be on the decline and their currency being non-market. Liberal Senator Bill Heffernan warned in recent interview with ABC News that the free trade agreement could ‘turn into a disaster’. Questioning how a trade agreement can be reached with a country that does not put their currency on the market.
It is expected that the Government will finalise the Free Trade Agreement with China during the upcoming visit this weekend and analysts are predicting that this will further cement Australians dependence on the Chinese economy.
The AUD/USD Exchange Rate is currently trading at 86.22 US Cents at 9:00 AM AEST this morning.