Following the publication of the high-impact China’s first-quarter growth and December activity data, the National Bureau of Statistics (NBS) expressed its outlook on the economy during its press conference on Wednesday.
Key quotes (via Reuters)
- Economy at good start with continued recovery momentum as policies gain traction.
- External environment more complex and serious.
- Unfavorable impact from the international environment on China’s economy is deepening.
- Q1 data underscores China's strong resilience and potentials.
- Protectionism is rapidly rising globally, world economic order has been severely damaged.
- Resolutely opposes US tariffs which are against economic rules, WTO rules.
- High US tariffs will bring about some pressures on China’s trade and economy.
- US tariffs will not change the long-term improving trend in China’s economy.
- China is able and has confidence in dealing with external challenges and achieving its economic growth target.
- Macroeconomic policies will become more proactive this year.
- China has 'rich' policy toolkit to support the economy.
- China issued nearly 1 trillion Yuan in special local bonds in Q1, helped boost investment.
- Will take measures to promote reasonable rises in consumer prices.
- Crucial to keep consumer prices within a reasonable range.
- Low prices could affect corporate profits and employment.
Market reaction
AUD/USD trades firmer near 0.6350, adding 0.10% on the day, at the press time.
Australian Dollar FAQs
One of the most significant 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 driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal 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 credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting 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. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, 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 gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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