With China’s Q1 GDP surpassing markets’ expectations while RBA’s dovish minutes failed to pull Aussie dollar lower, long AUD/USD?
China’s GDP grew by 6.4% in Q1 of 2019, surpassing the markets’ forecast of 6.3% in an AFP poll and matching the previous three months. Furthermore, March’s factory output rose to 8.5% from a year earlier while retail sales and investment expanded 8.7% and 6.3% respectively.
Last month, top policymakers met in Beijing to announce major plans to support the flagging economy. These include massive tax cuts, fee reductions and financing support. The stronger-than-expected performance spurred debate over whether more stimulus measures are needed or if the central bank and finance ministry should now begin paring back their support.
Earlier this week, the RBA’s meeting minutes were released whereby the bank discussed various scenarios under which a rate cut would be necessary. The dovish sentiments did not manage to pull Australian dollar lower; after the initial decline AUD/USD losses were erased and rose up higher. The reason why Australian dollar did not sustain its losses was largely due to the market already pricing in a similar rate path that the RBA would eventually adopt, following its peers such as the RBNZ.
AUD/USD spiked up to a three-month high following the better-than-expected Chinese GDP, as China is Australia’s largest trading partner. Hence, any improvement in China’s economy would boost Australian dollar as well.
AUD/USD is trading above the 200-SMA on the daily chart for the first time since March 2018. Now, all eyes will be focused on Australia’s labour data tomorrow and if data were to surpass expectations, this could boost AUD/USD towards the 0.7300 price level.
Fullerton Markets Research Team
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