AUD Weakens Following Unfavorable Chinese Economic Figures

The Australian Dollar weakened slightly in the wake of a disappointing round of key Chinese economic figures. Industrial production rose just 2.2% y/y in November versus the 3.5% estimate. This represents a slowdown from 5.0% in October.

Meanwhile, retail sales shrank 5.9% y/y for the same period, much worse than the -4.0% consensus. This also represents an acceleration from the -0.5% slump in October. This is as the surveyed jobless rate climbed to 5.7% versus the 5.6% estimate, rising from 5.5% prior.

China is Australia’s largest trading partner. As such, economic outcomes in the former often imply knock-on impacts for the latter. In this case, a slowing China could hurt Australia’s output down the road, perhaps inspiring the Reserve Bank of Australia to adjust its policy course.

Moreover, China is an outward-facing economy that remains vulnerable in the wake of slowing global growth triggered by the fastest tightening by central banks in decades. That might offset some of the anticipated boosts to Covid restrictions being eased in recent weeks.

Now, the sentiment-linked Australian Dollar awaits the European Central Bank and Bank of England December interest rate announcements. All eyes are on the ECB’s approach to quantitative tightening and economic updates from the BoE. The risk of volatility after the Fed is not quite over yet.