The Australian dollar is down after China released a weak inflation report. In the European session it is trading at 0.6509, 0.18% less.
The new year has not brought much joy to the Australian dollar, which has not had a winning week in 2024. Earlier in the week, the Australian dollar fell below the 0.65 line for the first time since mid-November. The slowdown in China, Australia’s biggest export market, is weighing on the troubled Australian dollar.
China’s CPI falls to its lowest level in 14 years
China’s consumer prices continued to decline, falling 0.8% year-on-year in January, the sharpest drop since September 2009. This was below the market estimate of -0.5% and marked a fourth consecutive decline. The main factor in the decline was the drop in food prices. On a monthly basis, the CPI rose 0.3%, up from 0.1% in December and below the market estimate of 0.4%. Producer prices fell 2.5% year-on-year in January, the steepest drop in four months.
The world’s second largest economy is in deflationary mode and there is a danger that deflation is taking hold. Domestic consumption has weakened and confidence is falling, as evidenced by the massive drop in the Chinese stock market. Deflation was virtually unknown before the Covid pandemic, but China’s shaky recovery has resulted in prolonged deflation.
The weak global economy has meant a decline in demand for Chinese exports and this has hit the manufacturing sector. Manufacturing activity contracted for the fourth consecutive month in January. The non-manufacturing PMI rose to 50.7 in January, up from 50.3, indicating stagnation.
China’s government has taken some steps to boost growth, such as cutting bank reserves and injecting those funds into the banking system, but more dramatic measures may be needed, such as lowering interest rates.
Reserve Bank of Australia Governor Bullock will testify before a House of Representatives committee today and traders will look for clues about the future path of RBA rates. The RBA left rates unchanged for the third time earlier this week and appears in no rush to lower rates.
- 0.6546 and 0.6590 are the next resistance lines
- 0.6468 and 0.6424 and providing support