AUDUSD, CHINA GDP, TRADE WAR, GLOBAL GROWTH – TALKING POINTS
- AUDUSD jumps on better-than-expected Chinese economic, Q2 GDP data
- US-China trade talks continue but with no clear indication on path ahead
- Global economy continues to slow as central banks contemplate rate cuts
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The Australian Dollar jumped after a slew of Chinese economic data came in better-than-expected while the year-on-year GDP report fell in line with expectations, showing a growth rate of 6.2 percent. However, it is worth noting that it was the slowest rate of expansion in almost three decades. Markets appeared to have shrugged this factor off and shifted their attention to impressive industrial production and retail sales data.
AUDUSD Reaction to China GDP, Economic Data
For over almost a year, economic data coming out of China has been underperforming relative to economists’ expectations. The fact that the majority of the publications beat forecasts signals a significant deviation from the broader trend. However, traders should not be too eager to celebrate – the fundamental outlook suggests slower growth ahead.
Earlier this month, the RBA cut its benchmark rate for a second time this year amid growing downside risks and slower growth out of Australia’s biggest trading partner: China. The central bank cut the OCR to a record low of 1.00 percent in an effort to boost inflation and job creation. However, it is unclear how much this will help lift the export-sensitive country that is facing a progressively slower and more fragile global economy.
Central banks all over the world have halted or completely reversed their tightening intentions. Fed rhetoric shifted from hawkish in 2018 to now dovish with the ECB considering implementing rate cuts and reintroducing quantitative easing if the economic conditions warrant it. The only central bank in the developed world that deviates from this trend is the Norges Bank, though they too may succumb to the pressure of their peers.
Will a US-China Trade War Resolution be Enough to Reverse a Global Slowdown?
Despite the US and China reaching a trade truce shortly after the G20 summit in Osaka, Japan, it remains to be seen whether both sides can reconcile what might be fundamental differences. The issue of intellectual property is a major sticking point. Furthermore, political tensions between Washington and Beijing may escalate after the latter threatened to impose sanctions against US firms that sell military equipment to Taiwan.
Learn more about US-China trade war risks here!
Looking ahead, monitoring this peripheral risk may be prudent in case it becomes a force which threatens to derail US-China trade talks. Immediate event risk this week includes a speech by Fed Chairman Jerome Powell, the publication of Australian employment data and the US University of Michigan Sentiment index. Watching these risks will be key because of the impact they may have on sentiment-linked assets like AUD.
AUDUSD TRADING RESOURCES
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
