AUD/USD falls to 5-week low on weak Chinese data

• Australian dollar declines sharply
• Chinese GDP and retail sales miss estimates
• Fed’s Waller urges caution with regard to rate cuts

The Australian dollar has extended its losses on Wednesday. In the North American session, AUD/USD is trading at 0.6538, down 0.69%. Earlier, the Australian dollar fell as low as 0.6525, its lowest level since December 7.

Chinese GDP misses estimate

China is Australia’s largest export market and weak data out of the Asia giant has pushed the Australian dollar sharply lower today. China’s GDP expanded by 5.2% y/y in the fourth quarter, up from 4.9% in the second quarter but shy of the market consensus of 5.3%. This rate of growth is low for China and is a result of the prolonged property crisis, weak domestic consumption and soft global demand. The recovery from Covid has been bumpy and the severe economic slowdown has caused China to slip into deflation.

Chinese retail sales also disappointed, slowing to 7.4% y/y in December. This was well off the 10.1% gain in November and missed the market consensus of 8.0%. Retail sales in 2023 looked like a roller-coaster, with readings ranging from as high as 18.4% in April 2023 to as low as 2.5% in July 2023.

In the US, we are also seeing caution from Fed members. Fed Governor Christopher Waller said on Tuesday that the Fed should lower rates “methodically and carefully” and that the timing and number of cuts would depend on the data. The Fed signalled in December that it would cut rates in 2024, but since then Fed members have been sounding hawkish and have pushed back against market expectations for up to six rate cuts this year, beginning in March. The markets have trimmed expectations for a March cut to 61%, down from 67% just one week ago, according to the CME’s FedWatch tool.

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AUD/USD Technical

• AUD/USD pushed below support at 0.6552 and put strong pressure on support at 0.6519 earlier
• There is resistance at 0.6608 and 0.6641

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