Australian Dollar Weakens Despite Strong Chinese Industrial Profits

AUSTRALIAN DOLLAR, CHINESE INDUSTRIAL PROFITS, TALKING POINTS:

• Chinese industrial profits expanded 21.1% on the year in May
• That was only a whisker below April’s showing
• The Australian Dollar slipped nonetheless

The Australian Dollar slipped a little Wednesday following news that, although China’s industrial profits held up very well in May, they had decelerated a little from the previous month.

Official figures showed profits up by 21.1% on the year, only slightly below the 21.9% gain seen in April. Recent Chinese data suggest that the economy is doing alright as the year heads into its second half. However, growing worries about trade confrontation with the US, and about the indebtedness of many Chinese firms, are glowering over the world’s second largest national player. Investors may be reassured by this reasonably perky profit release, but will as ever be concerned to see it maintained into year-end and beyond.

The Australian Dollar often acts as the markets’ favorite liquid China proxy. That’s quite understandable given Australia’s famed raw material export links with the country. Sur eenough, it seems to have done so on Wednesday, retracing against its US rival apparently on the data, although other factors may have been at work too.

On its daily chart AUD/USD remains in the downtrend which has contained trade for much of this year. The Aussie has suffered from the markets’ belief that local interest rates will be stuck at record lows until well into 2019, even as the US Federal Reserve continues to tighten policy.

That rather gloomy backdrop has now been darkened further by trade-spat headlines which tend to reduce market risk appetite and, in consequence, appetite for the Aussie.

AUD/USD is now at lows not seen since May, 2017. Next week’s monetary policy decision from the Reserve Bank of Australia is only likely to underline the lack of any rate-rise urgency and that could see the pair fall further.

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