Summary:
The Australian dollar stays near a two-year low despite China's stimulus plans, with strong fiscal support and robust iron ore demand offering relief.
The Australian dollar fell on Wednesday, slightly above its two-year low. Chinese authorities have agreed to issue 3 trillion yuan worth of special treasury bonds next year, two sources told Reuters.
Money market pricing implies a first cut by the RBA will occur only in April or May. Economists said the nation's strong fiscal impulse is a key reason the central bank has resisted joining a global easing cycle.
The IMF expects Australia to emerge from its anaemic growth phase driven by a recovery in consumption and "robust" government spending, though weaknesses in key trading partners could threaten that outlook.
China will ramp up fiscal support for consumption next year by raising pensions and medical insurance subsidies for residents as well as expanding consumer goods trade-ins, its finance ministry said on Tuesday.
Some economists forecast an overall increase in fiscal stimulus equivalent to about 2% of GDP, which is still modest globally speaking and short of what may be required to stem a deflationary spiral.
Demand for natural resources is seen as a silver lining. Iron ore imports have held above 100 million tons every month since July, which helped keep the benchmark price above $100 per ton.
RSI signalled the Aussie dollar was oversold, so it is unlikely to dip below 0.6200 in the short term. The initial resistance lies around 0.6300.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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