What Does China's GDP Mean for Aussie and Kiwi?

Last updated 4/16/2009 5:26 AM ET (GMT -5) 0 Comments - Add your comment

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Boris Schlossberg

Director of Currency Research, GFT

China’ s GDP printed slightly weaker than expected at 6.1% versus 6.3% forecast – its slowest pace of growth this decade, but despite the lower headline number underlying fundamentals suggest that the Chinese economy continues to expand at a healthy pace.

Income growth in urban areas increased by 12% while consumption spending increased 14% from year prior levels as Chinese economic expansion persisted despite global economic contraction. As a sign of it new consumption prowess, China became the largest market for new automobiles last month, beating out US for the first time in this category.

Although exports declined, growth in industrial production and investment accelerated sharply as Chinese policymakers try to rebalance some of the country’s economic activity away from exports and more towards domestic demand.

Yesterday’s semi-annual report by the US Treasury Department which specifically did not single out China as currency manipulator should also prove helpful as the year progresses, by alleviating some of the trade tensions that have built up between the two countries over the past several months

It’s doubtful, that China will be the locomotive that pulls the rest of the world out of the current global recession. The country’s economy is still less than one fifth the size of US or EZ GDP. Yet China can act as a very powerful engine of growth for the Asia Pacific region and to that end the two Anglo-Saxon economies of Australia and New Zealand should continue to benefit from Chinese economic expansion.

Although the Aussie and the kiwi continue to be driven primarily by forces of risk aversion and risk appetite, the currency market will begin to favor the two on a relative basis if their economic performance continues to surpass the data from G-4. The decline in EUR/AUD and EUR/NZD is already reflecting this view, but if the output gap between Europe and Asia Pacific grows wider, the trade should continue for some time to come.

China's GDP Results

Loading...

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.