The Australian dollar made gains this morning on the back of speculation that the recent round of stimulus in China could have positive effects on the Australian economy. It is hoped the package would boost exports for the world’s largest mining country due to China’s reliance on metals for its manufacturing sector, which has now seen five consecutive months of decline.
“It’s early days yet but the speculation will only have positive effects on the Australian dollar. Realistically this could very well cushion the recent blow to Aussie mining, which has only just exited a boom” said Marcus Holland, Editor at ExchangeCurrency.com.
The Aussie was up by 0.25% on the news, sitting at $1.0397 at 8:16am in London. Just 24 hours earlier the dollar had been at a two-week low of $1.0329. Earlier in the morning it had peaked at $1.0428 before contracting.
After gaining 0.4% on the yen, AUD pared its earlier rise to decline by 0.23% at 80.8054 yen per dollar.
China also hits US dollar
Elsewhere the US dollar fell against a large majority of the global economy’s most traded currencies. As Asian markets rallied on the back of Chinese stimulus, demand for the dollar fell, encouraging investors to become less focused on risk aversion.
While the unprecedented £94bn stimulus package announced on September 7th was enough to cause the Shanghai Composite Index to jump by more than 3.5% and increase prospects for manufacturers of steel. It is widely believed that the next package would have a much broader range of effects. Many analysts suspect that it will be announced shortly after the Chinese National Day, which falls on the 1st of October.
The US dollar fell 0.15% against the Pound, 0.21% against the Canadian dollar and 0.05% against the yen in what proved to be a disappointing morning for the world’s most prominent currency.
USD has enjoyed strong growth of late as investors across the globe look for a safe haven amid concerns for the stability of the euro. The European debt crisis has been an on-going threat to investors who look to the US dollar and more recently the Swedish krona, in times of widespread decline as a method of wealth protection.
The People’s Bank of China is not known for its subtle approach to financial issues, with their “weekend policy adjustments” becoming something of a running joke among market insiders and currency traders alike.
In 2010 the central bank announced a 4 trillion Yuan round of stimulus focused on the infrastructure of the nation, with a portion set aside for “social welfare”. The total package, which translated to around $585bn was on par with a move made by the US Federal Reserve around the same time, yet the Chinese economy was two thirds smaller than its American counterpart.
Marcus Holland added “Such drastic actions from the People’s Bank of China in the past, or perhaps even over reactions, have given investors’ confidence that the next stimulus package will come and it will be big. That is bound to have a dramatic effect in both Asian markets and the countries it imports from”.
