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Aussie Rebounds After Falling on Tensions Between China & Australia

May 12, 2020 at 13:16 by Vladimir Vyun

Australian 100-dollar billThe Australian dollar fell intraday but has rebounded by now. The drop was a result of growing political tensions between China and Australia as well as poor macroeconomic data in both Australia and China.

China banned imports of red meat from four Australian abattoirs. Analysts speculated that the move was a response to Australia’s demands of inquiry into the handling of the coronavirus pandemic by China. With China being the major destination of Australian exports, the conflict between the nations would be crippling to the Australian economy, especially on the verge of a global economic recession caused by the pandemic.

According to a report from National Australia Bank, the business confidence climbed from -65 in March to -46 in April. At the same time, the business conditions dropped from -22 to -34. Alan Oster, NAB Group Chief Economist, commented on the result:

Confidence saw a rebound in the month after the sharp fall last month, but this provides little comfort given it remains around twice as weak as the 1990s recession. Business conditions declined further in the month, with a broad-based deterioration across industries.

As for the longer-term outlook, he stated:

We see a recovery in growth late this year, but even though it could be a solid bounce the level of output is not expected to be recovered to pre-COVID levels until early 2022. We expect unemployment to match this pattern, falling in 2021 but remaining above 7%. This all points to required ongoing policy support for some time.

The National Bureau of Statistics of China released reports on the Consumer Price Index and the Producer Price Index today. The CPI rose 3.3% in April, year-on-year, slowing from 4.3% in the previous month and missing the market consensus of 3.7%. The PPI dropped 3.1% after falling 1.5% in the previous month. Analysts were expecting a smaller drop of 2.6%.

AUD/USD rose from 0.6488 to 0.6516 as of 13:13 GMT today, bouncing from the daily low of 0.6432. EUR/AUD was at 1.6689 after opening at 1.6648 and rising to the daily high of 1.6772. AUD/JPY was up from 69.81 to 69.98 after falling to the low of 69.14 earlier.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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