According to Reuters, China’s Ministry of Finance stated on Friday that the current global economic expansion lacked strength, and that tariff and trade disputes were further destabilizing economic and financial systems. The Ministry urged all nations to enhance the global economic and financial framework through increased international collaboration.
Key quotes
Economic and financial stability has been negatively impacted by tariff and trade conflicts.
To improve the international economic and financial system, all parties should increase multilateral cooperation.
All nations should dedicate more resources to the advancement of Africa.
Market reaction
The AUD/USD pair is currently trading near 0.6400, showing a decrease of 0.14% for the session at the time of this report.
Australian Dollar FAQs
The interest rate policies of the Reserve Bank of Australia (RBA) are a critical factor influencing the Australian Dollar (AUD). Given Australia’s wealth in natural resources, the price of iron ore, its largest export, is another significant determinant. The health of China’s economy, Australia’s primary trading partner, is also influential, along with Australia’s inflation rate, economic growth, and trade balance. Market sentiment, specifically whether investors are embracing riskier assets (risk-on) or seeking safer investments (risk-off), also plays a role, with risk-on scenarios generally benefiting the AUD.
The Reserve Bank of Australia (RBA) impacts the Australian Dollar (AUD) through its control over the interest rates at which Australian banks lend to one another. This, in turn, affects interest rates throughout the economy. The RBA’s main objective is to maintain a stable inflation rate of 2-3% by adjusting interest rates. Relatively high interest rates, compared to those of other major central banks, tend to support the AUD, while relatively low rates have the opposite effect. The RBA can also employ quantitative easing and tightening to manage credit conditions, with the former typically weakening the AUD and the latter strengthening it.
As Australia’s largest trading partner, China’s economic health significantly affects the value of the Australian Dollar (AUD). A robust Chinese economy leads to increased purchases of raw materials, goods, and services from Australia, thereby boosting demand for the AUD and increasing its value. Conversely, a weaker-than-expected Chinese economy can diminish demand for the AUD. Consequently, positive or negative surprises in Chinese economic data often have a direct impact on the Australian Dollar and its currency pairs.
Iron ore, Australia’s largest export, generated $118 billion in revenue in 2021, with China being the primary destination. The price of iron ore can therefore be a key determinant of the Australian Dollar’s value. Generally, an increase in the price of iron ore corresponds to an increase in the AUD, as overall demand for the currency rises. The opposite occurs when the price of iron ore declines. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which also supports the AUD.
The Trade Balance, representing the difference between a country’s export earnings and import expenditures, is another factor influencing the Australian Dollar’s value. If Australia exports highly sought-after goods, its currency will appreciate due to the surplus demand from foreign buyers seeking to purchase its exports, relative to its import spending. Therefore, a positive net Trade Balance strengthens the AUD, whereas a negative Trade Balance has the opposite effect.
