Neil Davies, Head of Trading at PlutusFX, takes a look at the Australian dollar.
China’s Industrial output rose just 7.7% year-on-year, against an expected 8% gain, with retail sales for October growing 11.5% annually, short of the 11.6% seen in September. Clearly huge figures by western standards, but the seemingly marginal slowdown is having an exaggerated effect. Commodities, having had a slow year, were hit. Brent Crude traded below $80 a barrel, a four year low.
The Aussie Dollar, being China’s proxy currency actually held firm, having a decent week. Currently it sits at AUD/USD 0.874, up from 0.854 a week ago. However, this hides what has been a weak second half of the year for the Aussie overall. Back on the 1st of July it hit 0.95.
The fact that the Aussie has stayed firm despite poor Chinese data may point towards a new upward trend. Inflation in Australia, according to the Melbourne Institute is expected to increase over the next year, up to 4.1% compared to a current level of 3.4%. Expectations of any interest rate increase, likely to be ahead of the Fed, does have the potential to continue the push back up to the July level for AUS/USD. However, the counter to this being that the Aussie, according to most estimates, remains above its fundamental value level, due to this year’s substantial commodity price declines.