Monthly wrap: AUD – Could China’s economic recovery boost the ‘Aussie’ in the weeks ahead?

Key Takeaways:

•             Australian dollar struggles on dovish RBA and US election uncertainty
•             Could improving Chinese economic data buoy the ‘Aussie’?
•             AUD Monthly lows: £0.54, €0.60, $0.70, C$0.94, NZ$1.07
•             AUD Monthly highs: £0.57, €0.61, $0.73, C$0.96, NZ$1.09
 
The Australian dollar (AUD) fluctuated throughout the past month after China – Australia’s largest trading partner – showed a promising return to form.

Reports have even suggested that China’s economy could expand 5.2% in the third quarter, buoying demand for the risk-sensitive ‘Aussie’.

With strong growth figures, analysts forecast China to be the only country to reach pre-crisis economic levels by the end of 2020.

Nonetheless, growing uncertainty over US elections is driving market volatility and shifts in market risk appetite, while continued deadlock in US Congress and doubts grow over an agreement on US fiscal stimulus before November adding to uncertainty.

Earlier this month Australia’s retail sales tumbled by -4% in August, leaving many ‘Aussie’ investors worried about the domestic economy’s recovery.

The Australian dollar came under further pressure following the Reserve Bank of Australia (RBA) holding its interest rates at record-lows of 0.25%.

While the decision met expectation, the hint of further monetary easing weighed on the ‘Aussie’ as Philip Lowe, the RBA’s Governor, struck a downbeat tone, saying:

‘The Board views addressing the high rate of unemployment as an important national priority. The Board [also] continues to consider how additional monetary easing could support jobs as the economy opens up further.’

Looking ahead, the Australian dollar (AUD) will continue to remain sensitive to global risk sentiment.

As a result, we could see the ‘Aussie’ sink if the Covid-19 infection rate rises throughout Europe and the US, which would spark higher demand for safe-haven currencies as the global economy falters.

In Australian economic data, next week will see the release of October’s Australian Westpac Consumer Confidence Report, which is expected to sink, likely weighing on AUD sentiment.

Additionally, US election developments will continue to drive AUD, with any signs of uncertainty dragging on the risk-sensitive AUD.

However, the Australian dollar’s gains could come in the form of an improving Chinese economy.

The ‘Aussie’ would edge higher as Australia’s largest trading partner continues to post encouraging economic data, pointing to a recovery for the world’s second-largest economy.