Weak Chinese data sent the Australian dollar tanking lower in early trade on Wednesday. The Aussie dollar US dollar dropped to a low of US$0.6772. The pair steadily clawed back lost ground across the European session reaching the flat line before the dollar strengthened on the release of GDP data sending the pair lower.
The Aussie dollar slipped sharply in the Asian session after dismal Chinese data. The stats showed that profits at Chinese industrial firms shrank by 9.9% in October compared to a year earlier. This was the biggest fall experienced in China industrial profits since 2011 and the third straight month of profit declines at Chinese industrial enterprises. The deep contraction highlights the impact that the ongoing US — China trade dispute is having on the Chinese economy, which is growing at its slowest pace in nearly three years.
As China is Australia’s largest trading partner, any slowdown in China will be reflected in the Australian economy. Fewer exports reduce the demand for Aussie dollars, weighing on demand for the currency.
Trade headlines are also in focus after President Trump proclaimed that China – US negotiations are near completion and that a phase one deal is nearly done. Investors are optimistic but given that this is not the first time that such a statement has been made, investors are waiting for more tangible results before pushing much higher.
US Inflation Up Next
Today is the final full day that traders will be at their desks ahead of the Thanksgiving holiday. There is a barrage of data for investors to digest. US GDP and US durable goods orders beat analysts’ expectations. The US economy grew 2.1% year on year in the third quarter, according to the second estimate. This was an improvement on the initial estimate of 1.9%. The dollar strengthened on the back of the release.
Looking ahead, investors will now focus on US inflation data, as measured by the Personal Consumption Expenditure (PCE). This is the Fed’s preferred measure of inflation. Analysts are expecting PCE to have increased 0.1% month on month in October. On an annual basis the expectation is for inflation to remain steady at 1.7%, shy of the Fed’s 2% target. A stronger reading could lift the dollar.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 USD = 0.6784 AUD Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar. Or, if you were looking at it the other way around: 1 AUD = 1.4739 USD In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar. |
