Aussie dollar weakens following softer Chinese data
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Daily Currency Update
The AUD/USD pair moved lower on Monday as the Australian dollar came under renewed pressure following the release of weaker-than-expected economic data from China. The disappointing figures highlighted ongoing challenges within the Chinese economy, dampening investor confidence and weighing on currencies closely tied to China’s growth outlook, most notably the Aussie.China’s National Bureau of Statistics reported softer readings for both Retail Sales and Industrial Production in November, underscoring a slowdown in domestic demand and industrial activity. Retail Sales, a key indicator of consumer spending, rose by just 1.3% on an annual basis. This fell well short of market expectations, which had forecast growth of around 2.9%. The data suggests that Chinese consumers remain cautious, likely reflecting lingering concerns over economic stability, employment prospects, and broader structural challenges.
Industrial Production figures also missed forecasts, adding to the negative sentiment. Factory output increased by 4.8% year-on-year in November, slightly lower than October’s 4.9% growth and below economists’ expectations of a 5% rise. While the decline appears modest, it reinforces concerns that the pace of China’s industrial recovery remains uneven, particularly amid weak global demand and subdued domestic investment.
The Australian dollar is particularly sensitive to economic developments in China due to the strong trade relationship between the two countries. Australia relies heavily on exports to China, especially commodities such as iron ore, coal and liquefied natural gas. As a result, any signs of slowing Chinese demand tend to have an outsized impact on the AUD. Weaker Chinese data often translates into concerns over reduced export volumes and lower commodity prices, both of which weigh on Australia’s economic outlook.
Monday’s decline in the AUD/USD pair reflects this close connection, as traders reacted swiftly to the data surprise by reducing exposure to the Aussie. The move lower also suggests a cautious market tone, with investors closely monitoring whether further stimulus measures from Beijing will be sufficient to revive consumer confidence and industrial momentum.
Looking ahead, the direction of the AUD/USD pair is likely to remain closely tied to developments in China, as well as broader global factors such as U.S. monetary policy expectations and risk sentiment. For now, the latest Chinese data has added to near-term pressure on the Aussie, keeping the pair on the defensive, as markets assess the outlook for Asia’s largest economy.
Key Movers
The US Federal Reserve delivered its third and final interest rate cut of the year last week, lowering rates by 25 basis points to a target range of 3.50% to 3.75%. The decision was widely anticipated by markets and reflects the central bank’s ongoing effort to balance slowing inflation with the need to support economic growth.During the post-meeting press conference, Fed Chair Jerome Powell emphasised that policymakers are now entering a period of observation. He noted that the Federal Open Market Committee needs time to assess how the three rate cuts implemented this year feed through to the broader US economy. Monetary policy, Powell reiterated, works with a lag, and the full impact of lower borrowing costs on consumer spending, business investment, and employment may take several months to become fully apparent.
Powell’s comments were interpreted as a signal that the Fed is in no immediate rush to make further adjustments to interest rates. While the door remains open to future moves if economic conditions warrant, the central bank appears comfortable maintaining its current policy stance while monitoring incoming data. This measured approach has helped temper expectations for additional rate cuts in the near term, lending some stability to US Treasury yields and the US dollar.
Market participants are now turning their attention to upcoming economic data for fresh clues on the health of the US economy. In particular, traders will closely monitor the US Non-farm Payrolls (NFP) report for November, scheduled for release tomorrow. The employment report is one of the most closely watched indicators of labour market conditions and plays a crucial role in shaping Federal Reserve policy expectations.
The November NFP figures could provide greater clarity on whether the US labour market is beginning to show signs of cooling after a prolonged period of strength. Any meaningful slowdown in job creation, a rise in the unemployment rate, or softer wage growth could reinforce the view that higher interest rates are weighing on economic activity. Such an outcome may increase market speculation about potential policy easing at the Fed’s January meeting.
Conversely, a resilient labour market with solid job gains and steady wage growth would support the Fed’s cautious stance and reduce the urgency for further rate cuts. For currency markets, the implications are clear. Signs of labour market weakness could drag the US dollar lower, creating a supportive backdrop for risk-sensitive currency pairs. On the other hand, strong employment data would likely underpin the Greenback by reinforcing expectations that interest rates will remain unchanged for longer.
As markets digest the Fed’s latest decision, the upcoming labour data will be critical in shaping near-term expectations, setting the tone for currency and bond markets in the weeks ahead.
Expected Ranges
- AUD/USD: 0.6550 - 0.6750 ▼
- AUD/EUR: 0.5550 - 0.5750 ▼
- GBP/AUD: 2.0050 - 2.0250 ▲
- AUD/NZD: 1.1400 - 1.1600 ▲
- AUD/CAD: 0.9050 - 0.9250 ▼