Australian Dollar Slips as China Industrial Profits Tank Again
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Australian Dollar, China Industrial Profits Talking Points:
- Chinese industrial profits fell at their fastest pace since 2011 in October
- They were down 9.9% on the year after a 5.3% September fall
- AUD/USD slipped initially, but US-China trade-deal optimism came to the rescue
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The Australian Dollar fell Wednesday on news that Chinese industrial profits fell at their fastest pace since 2011.
They were down by 9.9% on the year in October, a huge acceleration from the previous month’s 5.3% fall. This data release saw AUD/USD struggle, although it soon snapped back higher as the pervasive current optimism about the chance of an interim US-China trade deal is clearly enough to trump other worries.
Indeed the numbers may suggest that China has less room to finesse a deal to its liking. Investors are already worried about slowing growth in the world’s second largest economy, in addition to its vast debt levels. Those worries would become much more pressing if this decline in profits goes on.
On its broader, daily chart AUD/USD has been fading quite sharply since early November. Much of that decline has come thanks to broad US Dollar strength. The Federal Reserve has consistently refused to underwrite a succession of interest rate cuts, doggedly leaving future policy data-dependent.
Australian interest rates meanwhile remain at record lows with the key Official Cash Rate at 0.75%. Reserve Bank of Australia Governor Philip Lowe clearly left the door open to still-lower rates when he spoke in Sydney on Tuesday. However, he doubted that the RBA would resort to the Quantitative Easing seen elsewhere, or to negative interest rates.
Of course, the US-China trade story matters a great deal to the Australian Dollar market as Australia has close economic and political ties with both protagonists. For the moment markets seem reasonably certain that some sort of interim deal can be signed reasonably quickly, although it is important to stress that sentiment on this subject can change very quickly.
The Australian Dollar would probably gain significantly in the event that a deal were signed, and that prospect is underpinning it despite its lack of domestic monetary policy support.
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--- Written by David Cottle, DailyFX Research
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