AUD: Keeping a close eye on China – Rabobank

By FXStreet FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, suggests that the commodity currencies have reacted well to the news that Chinese leaders have approved an economic blueprint for next year.

Key Quotes

“Although there will be no details of the plan and no growth target until March, the sketch that has been drawn by officials indicates that monetary policy must be more “flexible” and that fiscal policy settings need to be more “forceful”.”

“Since early 2013, the value of AUD/CNY has dropped by almost 30%. The sharp fall in the value of the AUD has helped cushion the Australian economy against the multi-year lows registered in iron ore and coal prices this year. However, today’s statement from China that monetary policy needs to be more ‘flexible’ may mean more than lower interest rates from the PBoC.”

“Earlier this month the Chinese Central bank published a statement suggesting that there needs to be greater focus on China’s effective exchange rate rather than the CNY/USD reference rate. Although the CNY has fallen vs. the USD this year, China’s effective exchange rate has risen. On the back of weak inflation and slowing growth it is possible that the BoC will weaken its de-facto USD peg …read more

Source:: FX Street