China GDP In Trouble, Sparks Slight Weakness in the Australian Dollar

China’s economic situation is in dire straits with an economic output down by 6.8% in Q1 due to the Coronavirus as well as pessimistic highlights from China’s National Bureau of Statistics  press conference.

The expected shrinkage rate of China’s GDP was forecast at 6.5% but reached up to 6.8%. Some of the country’s other data included a positive industrial production data (1.1% slippage compared to a 7.3% expected slippage) and a negative retail sales (fell by 15.8% as compared to expected 10% slippage).

Additional reports from the China’s National Bureau of Statistics press conference also showed a clearer outlook of the country’s economic performance. Some of the key highlights can be found below:

– Companies to face challenges due to external factors

– Employment challenges are still high

– Fresh graduates are expected to have difficulty looking for jobs

– Public health sector has taken a huge hit due to the Coronavirus

– China affected by drop in global goods and personnel flow

While this news fueled the devaluation of the CNY in the short term, other positive highlights should also be noted:

– Foreign trade improved start of April from May

– China plans to increase support measures

– Consumption expected to rebound as demand grows

– Deepening reform expected

While the Yuan has taken a hit from the effects of the Coronavirus, the fundamentals of China’s economy appears to still be intact. The country expects its long term growth to continue despite the short term hit made by the pandemic.

Effect on the Australian Dollar

Australia has long been a liquid proxy of China  due to the two country’s trade links. Specifically, Australia’s raw material export link to China.  Because China’s GDP shrank in the first quarter, the AUD also took a hit.

However, the AUD was still able to make a rebound because of its strong monetary policy amid the Coronavirus. The Reserve Bank of Australia pushed for a zero domestic interest rate early this month which helped spark the rebound.

Despite the precautionary measures Australia is taking though, risk-on currencies such as this one is still vulnerable to global economic news. That’s why the overall sentiment of the AUD remains mixed for bow.

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