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Australian Dollar Drops On Deflationary Fears From China

ByFIBO Group
Published 02/10/2015, 06:44 AM
Updated 03/09/2019, 08:30 AM

The Australian dollar has dived below the US88.00c mark after another round of disappointing data out of China sparked fears of a slowdown in the world's second largest economy.

At 11.08pm (AEDT) the Aussie dollar was trading at US77.68c down from US77.99c in yesterday's trading.

Following on from the disastrous trade figures released late Sunday, China’s consumer price index, a barometer of inflation tumbled to 0.8% in the 12 months to January, falling to its lowest level since November 2009.

The producer price index fell to -4.3% over the last 12months against analysts expectations of a -3.8% decline, dragged down by falling energy and commodity prices.

ANZ Bank's chief Greater China economist Liu Li-Gang noted that the latest numbers are very disturbing and deflation has become a “real risk” for China.

“PPI inflation suggested that the out-of-factory prices remained extraordinarily soft due to sluggish demand for manufactured goods,” he said.

Mr Liu also said that further monetary policy would help and the Chinese government seem willing to act,

“Indeed, China’s central bank cut the reserve requirement ratio (RRR) last week and conducted a large amount of reverse repos before the Chinese New Year, indicating that the central bank has engaged into aggressive easing to head off the deflation risk," he said.

Mr Liu predicts China’s central bank will lower interest rates as we head in to the first half of the year. The continuing disappointing news out of China is only going to see the Australian dollar dive lower as the price of iron ore, Australia's biggest export comes under further pressure as the Chinese cut orders.

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