AUD/USD hinges higher as China reports a second-quarter gross domestic product (GDP) growth rate of 0.4% y/y, missing estimates at 1.0%. The reduction in growth rate can be attributed to the Covid19 lockdown, which has shut down activities in the country these past months. Also, homebuyers have refused to pay mortgages, and the property sector has declined to grow. Given that China is the world’s second-largest economy, an economic slowdown in the country might adversely affect global growth forecasts. The International Monetary Fund’s World Economic Outlook’s April update forecasted that China would grow at 4.4% in 2022, quite below the 5.5% China is pushing. The IMF is to release another update on July 26
Beijing needs to employ stimulus measures to support growth. Local governments are being pressured to increase special bond sales for infrastructure projects, though it may cause metal prices to crash harder as copper and iron ore prices have been down more than 20% since May. Chinese policymakers seem keen on increasing credit supply as opposed to lowering rates. Earlier today, the 1-year medium-term lending facility rate remained at 2.85%. The June data posed recovery signals as Industrial production rose to 3.9% y/y pace in June, up from 0.7% in May. June saw retail sales climb to 3.1% y/y, up from -6.7%, beating the 0.3% consensus forecast. Should China take a more calm and targeted approach to contain Covid outbreaks and stimulus measures increase, might incite forecast of a third-quarter growth. This somewhat explains the upside reaction in the Australian Dollar.