The Australian dollar fell sharply in reaction to a series of disappointing Chinese data on Friday, reaching close to a five-month low against the US dollar. China is Australia’s major trading partner and so the aussie is sensitive to news that could show slowing growth in the world’s second largest economy.
AUDUSD fell to 1.0018, its lowest level since 20 December 2011, bringing in sight a test of parity with the US dollar.
Chinese industrial output came in much weaker than expected, slowing to an annual rate of 9.3 percent versus analyst forecasts for 12.0 percent. Meanwhile, retail sales in April came in lower at 14.1 percent year-on-year compared to a previous 15.2 percent. Consensus was also at 15.2 percent.
The soft Chinese data raises speculation of further monetary policy easing by the PBOC (China’s central bank) through further cuts in the reserve requirement ratio for banks.
There appears to be quite a close relationship between industrial production figures and GDP growth in China which suggests that if industrial production growth remains close to or below 10 percent in coming months, the chances are Chinese economic growth may slow down further.