Chinese Inflation Numbers Lift the Australian Dollar

Alan Penny

10 February 2020

3 min read

China forex news

  • CPI year-over-year surprises
  • PPI year-over-year comes in as expected
  • Chinese factories delaying opening could affect growth

During the early hours on Monday in Asia, the Chinese released important inflation numbers that would  be highly anticipated due to the recent outbreak of the coronavirus and its effect on the potential growth in China. Because of the recent bad news, the number surprising to the upside would be music to the ears of traders. One of the easiest ways to play these announcements would be through the Australian dollar, as Australia is a major exporter into the Chinese mainland for its raw materials.

The announcements come in positive

The Consumer Price Index year-over-year came in at 5.4%, much better than the anticipated 4.9% by the market. This shows that there is still growth in China, at least on the inflationary side. The Producers Price Index came in at 0.1%, as anticipated. It does show that at least January wasn’t a complete loss, and therefore it will cause a “risk-on” attitude in Asia, or perhaps a better way to put it is less bad sentiment.

a better than anticipated number is a welcome surprise, and it does suggest that perhaps things aren’t as bad as initially thought

Going forward, there will be a lot of attention paid to these figures as there are major concerns as to not only the damage done by the coronavirus, but also the slowdown that had been a concern previously. The world has lower demand in general, and that will have its negativity in the Chinese economy as it is the world’s producer of goods overall. That being said, a better than anticipated number is a welcome surprise, and it does suggest that perhaps things aren’t as bad as initially thought.

However, there are reports that some factories in China are looking to push back opening back up, and that will have a ripple effect through the world’s economy overall. With that in mind, it looks as if the rise in the Australian dollar could be short-lived. As New York came online, the Aussie dollar was trading below the 0.67 level again, which is a major support region. After the horrific week last week, it would make sense that there could be some follow-through in the Australian dollar. For what it is worth, the market is also selling the Aussie against the Japanese yen and what would be a clear sign of risk aversion overall.

Don’t get too excited about global growth

AUD/USD yearly chart

Going forward, it is still too early to get overly excited about the prospect of global growth as more of a “risk-on” move, but it does show that there are at least some green shoots out there.

The real question will be what happens in February, so keep an eye on inflationary numbers out of China as well as factory closures.

Factory closures certainly will do some damage to the Chinese economy, but the question then becomes whether or not it is a short-lived phenomenon, or if it is something much more nefarious. The Australian dollar will more than likely lead the way as to where risk sentiment is going.


Written By
Alan Penny

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