The Australian Dollar advanced after the latest official figures cast China’s economy in a resilient light despite the ongoing trade spat with the US. This helped to boost sentiment toward all risk-sensitive assets and leave the Aussie well placed. However constant global rate cut discussions could be about to put the stoppers on the potential for long term upside.
China’s economy grew at an annualised pace of 6.2% in the second quarter, down from 6.4% previously but in line with market expectations. However, the monthly data cast the economy in a much more resilient light than had previously been expected.
The series of positive monthly figures have left the impression among analysts that momentum in the world’s second largest economy gathered pace toward the end of the recent quarter. Furthermore, the end of June saw a ceasefire in the U.S.-China trade war agreed that could well have given Chinese growth a further boost this July.
After the RBA cut interest rates at the June meeting, the central bank then seemed to rule out further interest rates cuts, if that is the case the RBA would be in a select group not looking at further monetary easing.
The meeting minutes this week will of course be important within this rhetoric. They will include board member’s deliberations and could shine a light on whether the central bank thinks economic conditions are dire enough to warrant another interest rate cut.
The RBA’s official stance is that it is in a wait and see mode and will “monitor developments in the labour market closely and adjust monetary policy if needed”. The main worries are below-target inflation, slowing economic growth and a loss of momentum in the jobs market.
This has led to yet another rise in the Aussie at the start of July taking AUDUSD back towards 0.7050 again. The upside level will be short term important for the pair, especially in a week that could see the monetary policy story cleared up for at least the next quarter. A break of the upside 0.7050 level would leave a clear test of 0.7200 level.
On the downside we still must look at a failure of the 0.7050 level, with rates more likely to stay at these lower levels rather than be cut further this should weigh on the Aussie and could see a retest back below the all important 0.7000. There is no doubt that the psychologically important 0.7000 remains the point of control for the pair.