The Organisation for Economic Cooperation and Developed earlier warned investors that China’s economy was on the verge of further slowing. According to the OECD, Chinese growth could slow to 6.5% in 2016, with a further slowdown the following year to 6.2%. The OECD also mentioned in its report that the government’s fiscal stimulus efforts was likely unsustainable in the long term and could crowd out private investment. China’s economy grew 6.9% in Q3, year-over-year, the weakest pace yet. The Peoples Bank of China, as a result, lowered interest rates six times.
The slowdown in China especially typically tends to impact antipodean currencies, primarily the New Zealand and Australian Dollars. Both Asian economies rely heavily on trade with China, and a slowdown affects all segments of their respective economies. Despite some short-term support, both currencies could come under pressure in the long term. As reported at 10:57 am (GMT) in London, the AUD/USD was trading at $0.7060, moving away from the day’s low at $0.7027; the daily peak was $0.7071. The NZD/USD was trading at $0.6549, near mid-way of the day’s trading band of $0.6521 and $0.6568.
China has Lofty Goals
Neither fiscal nor monetary policies have sufficiently changed the course of the Chinese economy. The PBOC has steadily intervened to devalue the Chinese Yuan, despite criticism from other central banks. The Chinese President recently said that in order to meet GDP and per capita income targets by 2020 it needs to have average annual growth of at least 6.5% over the next 5 years. China is on target to close out this year with near 7% growth.