At the Third Plenum conference on Friday, China's senior party official said that the economic recovery is not strong enough.
Additional takeaways
Need to implement macro policies more effectively..
Should speed up the issuance and use of special bonds.
Should give full play to the role of fiscal funds in leveraging economic growth and structural adjustment.
Monetary policy should be flexible, moderate, accurate and effective.
Maintain reasonable and abundant liquidity.
Should increase policy support so that enterprises and consumers tangibly benefit.
Make good use of funds from ultra-long term special bonds.
Should increase residents' property income through multiple channels.
Will improve the long-term expansion of consumption.
Will improve the mechanism for promoting high-quality full employment.
We should speed up the construction of a new model for real estate development.
Eliminate the past high debt, high turnover and high leverage model.
Build a model that better meets the expectations of the people, better mets demand for improved housing.
Need to establish appropriate financing, taxation, land sales systems.
High quality development of real estate still has considerable room for development.
We will expand domestic demand, especially consumer demand.
We should stabilise the basic situation of foreign trade and investment.
China's economy is big, with great potential for domestic demand.
Market reaction
AUD/USD is unimpressed by these Chinese resolutions, licking its wounds near 0.6700, at the time of writing.
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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