Australian Dollar Stagnant on Chinese Industry's Seven Month Profit Squeeze
THE TAKEAWAY: Chinese industry posts seventh consecutive monthly loss > Declining exports and Eurozone slowdown likely key contributors > Australian Dollar little changed
Profits for Chinese industrial firms declined by -3.1 percent in August throughout the year, down from July’s reading at -2.7 percent marking a seventh consecutive monthly loss. The “profit-squeeze” can partially be explained through flagging export trade which has been steadily growing at decreasing rates since peaking at 48 percent growth rate in May 2010. As of the end of August this year goods have been leaving Chinese boarders at a 2.7 percent rate of growth. Moreover, over the last year GDP growth projections were downgraded by one percent to 7.7 percent, likely reflecting Eurozone consumption woes.
The Australian dollar was little changed as a depressed Chinese industry should translate into reduced orders for Australian exports. The Aussie has been on the decline for three consecutive days versus the greenback and is likely going through a period of retracement as traders book profits from recent heavy risk aversion sentiment.
AUD/USD, 4 Hour Chart
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