Since July 12, the Australian Dollar (AUD) has lost almost 3.5% against the US Dollar (USD), making it one of the weaker G-10 currencies over that period. Two things have probably contributed to this. Both are related and both have a direct impact on Australia. But their origins lie elsewhere, Commerzbank’s FX analyst Volkmar Baur notes.

AUD is facing headwinds from China

“In fact, the only significant new information on the Australian economy over the past two weeks has been the labor market data – and that should have supported the Aussie dollar. After all, the Australian economy is still creating significantly more jobs per month than before the pandemic, so the labor market remains tight and wage growth should remain high.”

“On the other hand, the AUD is facing headwinds from China. Weak economic data, plus a relatively disappointing Third Plenum and so far no further stimulus announcements after the expected July Politburo meeting. The Chinese economy is now expected to be weaker than it was a few weeks ago, and the impact is being felt in the industrial metals market in particular.”