The Australian dollar is trading above .74 cents but still lagging behind other major currencies.
“The Aussie dollar’s failure to drive higher despite the move in US dollar and the rally in base metals in recent days is a sign that there are still concerns about the impact of the Chinese economy on Australia,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
Overnight, both the Euro and Swiss franc gained about 1% against the US dollar, which fell to its lowest level since Donald trump’s election victory last November.
According to McKenna, there are investment banks that have raised concerns over the outlook for China, and indirectly, the impact on the Australian dollar.
“And it’s a concern that perhaps the Reserve Bank of Australia (RBA) also holds if yesterday’s board meeting minutes are anything to go by,” he added.
The RBA minutes said Chinese economic growth “retained momentum in early 2017”. But that comment came with a big caveat.
According to McKenna, the RBA Minutes said:
“Members noted that the outlook for the Chinese economy, particularly the residential property market, was an ongoing source of uncertainty for Australian exports and the terms of trade. Another source of uncertainty was how the Chinese authorities might balance achieving their growth targets with the risks associated with high and rising leverage in the Chinese economy.”
McKenna pointed out that “It is specifically the point that many investors and traders have been making in recent weeks,”
“If Chinese authorities have locked down their capital account and are dealing with the rebalancing of the economy and making it less intensive on investment and repositioning toward services, then demand for Australian exports might fall,” McKenna said.
Also this week, it’s been reported that Chinese authorities are cracking down on disclosure rules for the giant Wealth management Product (WMP) industry.
“That’s another sign China is serious about economic reform and cracking down on its shadow banking sector,” McKenna said.
He added that it’s easy to see why the Aussie is being sold on rallies and underperforming the Euro and other currencies push against the US dollar.
However, he added that a relatively weak Aussie dollar may be a good thing for the Australian economy.
In the meantime, he said, “I will be watching the release of the wage price index for the first quarter and Westpac’s consumer sentiment index very closely when they are released this morning.”
Back in 2007, AxiTrader was founded on a simple idea: to be the broker we’d want to trade with. We’ve since grown to become one of Australia’s largest and leading Forex brokers. Investing in over-the-counter derivatives carries significant risks and is not suitable for all investors. You could lose substantially more than your initial investment.
This post has been seen 480 times.