Australian Dollar Extends Gains on Chinese Data

• China industrial production and retail sales accelerate
• Australian dollar extends gains

The Australian dollar has extended its gains on Friday. In the European session, AUD/USD is trading at 0.6713, up 0.23%. It has been an excellent week for the Aussie, which has gained 2.07% on the back of the dovish Fed announcement and strong employment data at home.

The Aussie gained ground on Friday after China posted strong numbers. Industrial production surged 6.6% y/y in November, following a gain of 4.6% in October and above the consensus estimate of 5.6%. This marked the highest level since February 2022. China’s retail sales jumped 10.1% y/y in November, higher than the 7.6% gains in October but shy of the consensus estimate of 12.5%. This marked the 11th straight month of growth and was the fastest expansion since May. The data is an encouraging sign that China’s economy is responding to government stimulus after a rough patch in the third quarter.

Australian job growth sparked in November, as the economy added 61,500 jobs, crushing the forecast of 11,500. This suggests that the labour market remains resilient despite high-interest rates. The Reserve Bank of Australia has reiterated that rate decisions will depend on the data and the strong employment release provides support for the central bank to maintain a tightening bias. With inflation running at 5.4%, well above the 2% target, Governor Bullock has warned that the Bank could continue hiking. The markets, however, aren’t buying it and have priced in about 50 basis points in easing in 2024.

We are also seeing a disconnect between the markets and the Federal Reserve. At the Wednesday meeting, Fed Chair Powell reiterated that rates could move higher if necessary, this seemed little more than lip service as he signaled that the Fed expected to cut rates three times in 2024. The markets are much more dovish and have priced in six cuts next year.

AUD/USD-4-Hr Chart

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