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AUD Price Rally Possible Despite Weak China Data

AUD Price Rally Possible Despite Weak China Data

Martin Essex, MSTA, Analyst

AUD price, China data and analysis:

  • Chinese economic growth is faltering, increasing the chances of more monetary as well as fiscal stimulus by the Beijing authorities.
  • That should help the Australian Dollar, which is seen widely as a proxy for the world’s second-largest economy.

Weak China data

Data released Thursday have emphasized the current slowdown in the Chinese economy. However, that could benefit AUDUSD and other AUD crosses as the figures raise hopes of more economic stimulus from Beijing – and traders see the Australian Dollar as a China proxy because China is a major market for Australian exports.

The numbers showed Chinese industrial output growth at its lowest for 17 years, as well as a jump in unemployment.

Latest Chinese economic data.

Chinese Premier Li Keqiang has already announced hundreds of billions of US Dollars in additional tax cuts and infrastructure spending and the data suggest that the People’s Bank of China will likely follow suit with more monetary stimulus by cutting banks’ reserve requirements again and guiding borrowing costs lower.

That could help the AUDUSD price, which has been moving higher over the past week but slipped back Thursday when the Chinese data were released.

AUDUSD Price Chart, Hourly Timeframe (March 7 – 14, 2019)

Latest AUDUSD price chart.

Chart by IG (You can click on it for a larger image)

US-China trade talks in focus

To the downside, US President Donald Trump said Wednesday that he was in no hurry to conclude a trade deal with China, and a summit between Trump and Chinese President Xi Jinping due later this month has yet to be confirmed.

AUDUSD technical analysis

From a technical perspective, AUDUSD looks to be bouncing from a support line connecting the higher highs recorded over the past week and a near-term target could be the highs just under 0.71 recorded late Wednesday. If they are broken, the February 21 high at 0.7207 would be a possible goal.

However, there is currently no clear signal from IG client sentiment data. Retail trader figures show 65.6% of traders are net-long, with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since February 27, when AUDUSD traded near 0.7193; the price has moved 1.8% lower since then. The number of traders net-long is 8.2% higher than yesterday and 6.2% lower from last week, while the number of traders net-short is 8.0% lower than yesterday and 0.6% higher from last week.

At DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a mixed AUDUSD trading bias.

AUDUSD sentiment data.

Like to learn more about the sentiment data? You can listen to this webinar to do so.

More to read:

A brief history of trade wars

Using news and events to trade forex

Resources to help you trade the forex markets:

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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