Guest Commentary: China/Aussie Correlation Has Lost Its Luster
A long-standing correlation between China’s economy and the Australian dollar has noticeably weakened, requiring timely adaptations on the part of AUD/USD traders.
The Australian dollar (AUD) is often seen as a proxy for the Chinese economy. China is Australia’s largest trade partner, and any shifts in Chinese demand for commodities—or changes in the Chinese economy in general—are commonly followed by moves in the Australian dollar. However, this has changed of late.
The Australian dollar is now sliding lower from the high range and in a downtrend channel despite favorable recent economic data out of China. (See latest AUD/USD technical analysis on Forex Crunch.)
The purchasing managers’ indexes (PMIs) from the economic giant point to stronger growth, a trend seen in both the official data and the independent Markit/HSBC figure. In addition, profits of Chinese industrial enterprises surged 17.3% year over year. Industrial profits in China may rise up to 30% in 2013, according to a Bloomberg News survey.
However, in the land down under, PMI data hasn’t been upbeat and remains under the 50-point mark separating growth and contraction, according to the Australian Industry Group (AIG).
Also, the Australian housing sector is struggling. Recent Australian Bureau of Statistics (ABS) figures show a drop of 10.3% in home loan commitments for new dwellings in November. Developers now offer various discounts and incentives, ranging from 5,000 to 126,000 Australian dollars. For example, Devine offers mortgage repayments for up to a year under specific conditions. Carlisle Homes offers a 30,000-dollar discount on specific homes.
It is important to note that these offers do not count as price reductions, a move that could aggravate previous homebuyers and also cause banking-related concerns. In any case, the state of the housing sector in Australia isn’t promising, and even these special offers are not stimulating demand at the moment.
The weakness of AUD/USD is also related to the improving US economy, but by and large, the impact of Chinese data on the Australian dollar seems to be weakening, while the impact of Australia’s economy on the value of its own currency is on the rise.
Alsoread:Weekly AUD/USD forecast on Forex Crunch
By Yohay Elam of Forex Crunch
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.