The Australian dollar performed well across various markets yesterday (i.e., 15 January 2019), and today it is trading at AUD/USD 0.7200 (approx.). The positive movement by the Australian dollar is mainly driven by the Chinese Yuan which also climbed up against the US dollar, and it is currently at ~ YEN/AUD 0.013.
As per the recent market buzz, it is expected that the Chinese policymakers may soon bring in stimulus measures to support the economy of their Country which is currently in the middle of a trade war with the US. Due to the expected stimulus measure in the Chinese market, both the Australian dollar and Chinese Yuan have gain strength recently.
Recently, China’s Vice Premier, Liu He accepted the invitation to visit Washington on January 30 and 31 to talk about ending the trade war. The Chinese Yuan was positively affected by this news as China has been struggling a lot in the current trade war with the US. The end of the trade war with the US will be good news for the Chinese economy. With the recent confirmation from China Ministry of Finance (MoF) and National Development and Reform Commission (NDRC) regarding value-added tax (VAT) cut has created a positive buzz about the Chinese economy. Further, these institutions have also pledged to accelerate infrastructure investment in China.
China being a leading importer of metal and minerals and Australia being a leading exporter of metal and minerals, any change in China’s market and economy can substantially affect the economy of Australia and its currency. Currently, the Chinese steel manufacturing industry is suffering from lower profit margins, and the amount of iron ore import in 2018 has also decreased as compared to 2017. Further, it is expected that the steel consumption in China may also decline in 2019, which could substantially affect the Australian Mining Industry which is a major exporter of iron ore to China.
China’s December export numbers also declined in December 2018 when compared to the previous corresponding year. These conditions have prompted Chinese policymakers to intensify its policy easing and stimulus measures in 2019.
Earlier in 2018, the US imposed import tariffs on billions of dollars’ worth of Chinese goods due to which the Chinese market was very much affected. In response, China also levied higher tariffs on US goods due to which the overall imports growth of China was affected.
The Australian investors need to keep a close watch on the expected stimulus measures which are soon going to be announced by the Chinese Policymakers, as any change in the Chinese economy is expected to prompt a change in the Australian Economy also.
The S&P/ASX200 index is slightly up by 0.2 percent today with biggest gainers Ausdrill limited and Bingo Industries limited which are 8.681 percent and 7.143 percent up, respectively.
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