Australian Dollar Flexes Its Muscles On The Heels Of Strong Chinese Data
The Australian dollar demonstrated a strong rally recently after China released strong Q2 economic data that highlights revived spending in the Asian country.
China and Australia have a strong trade relationship and that means that the trade situation in the Asian mega-economy has a significant economic impact on the land down under. In this case, China recently reported strong economic data for the second quarter, thus fueling a rally by the Australian dollar against the US dollar.
The AUD's rally is quite refreshing for the country especially since it means recovery after performing poorly over the past few months due to the lengthy trade war between China and the U.S. The trade war negatively affected the Chinese economy and subsequently the Australian dollar's performance.
AUD/USD performance after the positive economic data from China
As noted earlier, China’s economy was previously affected by prolonged trade standoff. However, the recent ceasefire seems to have spurred strong economic performance in Q2. The impact on the Australian Dollar is evident in the bullish trend that took over after the Chinese data was announced.
The AUD/USD surged by 0.2% to 0.7024 following the release of the Chinese economic data.
The Chinese economic data that fueled the rally
Among the positive news about the Chinese economy was the industrial output which hit a 17-year low in May undoubtedly due to the negative impact of the trade war. However, it had a significant jump in June, thus indicating a recovery.
Retail sales also demonstrated an uptick in June after rising by 9.8% compared to the previous year. The Chinese retail sales also performed better than analysts expected, thus highlighting measures that are aimed at improving the spending situation in China.
The country’s gross domestic product (GDP) grew by 6.2% in the quarter ended June, which marks the slowest quarterly GDP growth pace that China has experienced for the last 27 years.
The US dollar’s performance amid the AUD rally
The USD performed slightly higher against the main currencies it has been pegged against in the US dollar index. However, the US dollar has been held back by fears of increasing chances of rate cuts by the Federal Reserve.
The US dollar also rallied against haven currencies such as the Japanese Yen in June. Meanwhile, the US bonds rallied after the Federal Reserve announced plans to maintain rates while the US treasuries fell short of the current Federal Reserve range of 2.25%-2.50%.
The Chinese economic data might be encouraging to investors but it is clear that investors all over the world are still worried about low inflation and slower growth globally. This might explain why investors have been heavily investing in the money market funds and bonds. This type of investment was also fueled by the trade tensions between the U.S and China.
Analysts believe that the end of the China-U.S. trade war will encourage investors to move away from safe havens. The US dollar has already started gaining traction against safe havens following the decision by Chinese and U.S. leaders to find a middle ground.