Australian Dollar Surges on Positive Chinese Economic Data and Strong Domestic Jobs Report

September 16, 2023
Australian Dollar Surges on Positive Chinese Economic Data and Strong Domestic Jobs Report September 16, 2023 Lennox Hamilton

The Australian Dollar (AUD) has continued its winning streak, bolstered by a combination of upbeat Chinese economic data and impressive domestic job figures. These positive indicators suggest that China’s economic downturn may be receding, while Australia’s job market remains robust. As a result, the AUD has gained ground against the US Dollar and other major currencies, signaling renewed optimism in currency markets.

Chinese Economic Data Boosts AUD:

China’s recent release of stronger-than-expected economic data has significantly contributed to the Australian Dollar’s surge. Retail sales figures in China exceeded market expectations, recording a year-on-year growth rate of 4.6%, surpassing the consensus estimate of 3.0%. Similarly, Chinese industrial production demonstrated resilience, posting a 4.5% year-on-year increase, exceeding the anticipated 3.9%. The jobless rate in China also outperformed expectations, registering at 5.2% instead of the consensus expectation of 5.3%.

Market Strategist Charu Chanana from Saxo Bank remarked on the AUD’s stellar performance, stating, “AUD has been the best performer against the US dollar on the G10 board so far this week, on the back of a supported risk sentiment. The performance has been further boosted by a strong August labor market report yesterday and signs of improvement in China’s activity data as well as the surge in iron ore prices.”

People’s Bank of China’s Stimulus Measures:

In addition to the positive data, the People’s Bank of China took measures to stimulate economic activity. While the one-year medium-term facility rate remained unchanged, the 14-day reverse repo rate was lowered to 1.95%. These actions were aimed at providing liquidity and boosting economic activity.

Charu Chanana noted, “This better-than-expected economic data came after sentiment was boosted by RRR cut announcement late on Thursday that followed an interest rate cut on medium-term loans earlier, and more liquidity injections were seen today. Overall, these measures hinted that the easing stance of Chinese authorities may be getting more aggressive.”

Positive Sentiment Fuels AUD:

The optimistic economic data and stimulus measures not only boosted investor sentiment but also had a positive impact on Asian equity markets. As a result, the Australian Dollar experienced a surge in value, leading to a decline in the Pound to Australian Dollar exchange rate and a 0.45% rally in the Australian Dollar-U.S. Dollar rate.

 

Carol Kong, a strategist at Commonwealth Bank, noted, “AUD/USD lifted above 0.6460 thanks to better-than-expected Chinese economic data. Commodity prices, especially iron ore prices, rose strongly.”

 

China’s Influence on the AUD:

The Australian Dollar has long been influenced by China’s economic performance, given their close economic ties. The recent signs of stabilization in China’s economy have provided support to the AUD. Carol Kong highlighted this relationship, stating, “In our view, the trajectory of AUD remains largely in the hands of China’s economic performance and its policy response. Australian commodity prices and AUD can lift sharply if the Chinese government significantly increases its infrastructure investment later this year. For now, signs of stabilisation in China’s economy may help to cap the downside in AUD.”

Strong Domestic Jobs Report:

The AUD’s recent strength also stems from robust domestic job market data. In August, 64.9K Australians entered employment, far exceeding the market’s expectation of 23K. This positive surprise has had a notable impact on currency markets. Additionally, the participation rate in the labor force reached a record high of 67%, surpassing the market’s anticipated 66.7%. The unemployment rate remained steady at 3.7%, near historical lows.

Michael Pfister, an economist at Commerzbank, commented on the implications of the strong job data, saying, “This should play into the RBA’s hands. Another rate hike in November is now not all that unlikely, should the labor market remain tight and inflation continues to stay above target.”

Conclusion:

The Australian Dollar’s recent gains reflect a confluence of factors, including positive Chinese economic data and a robust domestic job market. As the AUD continues to perform strongly, it demonstrates the resilience of the Australian economy and its close ties to China’s economic performance. The outlook for the AUD remains closely linked to these key economic indicators, making it a currency to watch in the coming months.

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