China Economic Stimulus to Benefit ZAR, Oil and Copper
China stimulus news and analysis:
- The latest plan by China to boost its economy via fiscal measures is likely to be followed by more economic stimulus.
- That should lift demand for commodities, as well as the currencies of commodity producers like South Africa.
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Chinese demand to rise
The prospect of further moves by the Chinese to boost their economy will likely lead to increased demand for commodities and boost the currencies of commodity producers like South Africa and Australia.
On Monday, China announced new economic measures to increase liquidity and offered nearly $200 billion to local governments to spend on infrastructure. While relatively modest, the package is likely to be followed by more fiscal and monetary measures, which would boost Chinese imports.
On the currency front, the latest moves have lifted the South African Rand, which is now well placed to make further gains.
USDZAR Price Chart, Hourly Timeframe (July 19-25, 2018)
US Crude Oil Price Chart, Hourly Timeframe (July 19-25, 2018)
China’s new measures have helped offset market concerns about the US-China trade dispute ahead of a meeting between US President Donald Trump and European Commission President Jean-Claude Juncker. Hopes are high that a full-scale trade war can be avoided, and that has helped boost market sentiment.
One currency that has failed to benefit so far is the Australian Dollar. Even though Australia is another major commodity exporter, AUD is suffering from news of weaker than expected inflation data. However, that weakness could easily reverse.
AUDUSD Price Chart, Five-Minute Timeframe (July 25, 2018)
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.