First downgrade on China by Moody’s in past 30 years expresses its concern on Chinese economy. If the judgment is true, that could affect the Australian economy as well, whose growth largely relies on China.
Moody’s downgraded China one notch from Aa3 to A1, its fifth-highest rating, such moves are likely to dent global investors’ confidence over 2nd largest economy, Fullerton Markets analysis shows.
- Moody’s also referred to quasi-fiscal spending by other state-owned enterprises, which the agency views as contingent liabilities for the central government.
- Ratings downgrade is a stark warning of the risks posed by rapidly rising leverage that could prove costly even if it does not result in a financial crisis.
- Markets have been anxious about policy tightening, which can be seen in domestic equities and bonds market.
- The downgrading will add more downward pressure on Aussie and Kiwi, which have been highly correlated with the Chinese economy.
- AUD/USD may move towards 0.7420 within this week.
Fullerton Markets Research Team
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