- The Chinese economy’s solid recovery from the February lows continues to support AUD.
- The signing of RCEP could help ease Australia China in the near term.
- AUD/USD targets yearly highs after breaking through key resistance.
CHINESE ECONOMIC RECOVERY SUPPORTS AUD
China’s solid economic recovery from February lows could continue to support the trade-sensitive Australian Dollar over the medium term.
Data suggests that China’s recovery is gathering pace. The Caixin manufacturing, services and composite PMI prints for October beat forecasts.
The rate of growth in business activity was the fastest in around 10 years. Industrial production increased by 6.9% YoY climbing the most in almost a year.
More stimulus could be on the cards meaning the economy is set to continue expanding this year potentially lifting risk sentiment and the cyclically-sensitive AUD.
RCEP COULD CALM AUSTRALIA-CHINA TENSIONS
Rising Australia-China trade tensions could drag on the Aussie Dollar and regional risk assets.
The signing of the world’s largest regional free-trade agreement could help calm relations and end the tit-for-tat exchanges that have threatened over $20 billion of exports.
15 Asia-Pacific nations signed the Regional Comprehensive Economic Partnership (RCEP) at the 37th Asean Summit on Sunday. The trade deal is likely to decrease tariffs, strengthen supply chains and implement new e-commerce regulations.
Australian Trade Minister Simon Birmingham considers that the RCEP will provide a platform to mend relations,
It remains to be seen if this is the case. However, the potential for constructive talks could boost market sentiment and buoy risk-sensitive assets.