In November, China’s Retail Sales rose by 1.3% compared to last year, falling short of the expected 2.9% and matching October’s figures. Industrial Production increased by 4.8%, slightly below the predicted 5.0% but up from 4.9% in October. Fixed Asset Investment for November showed a year-to-date drop of 2.6%, worse than the expected -2.3% and down from -1.7% in October. This data had little effect on the Australian Dollar, which edged up by 0.03% against the US Dollar.

Australian Dollar Performance

The Australian Dollar performed differently against major currencies, weakening significantly against the Japanese Yen. If Chinese economic data exceeds expectations, the AUD/USD pair could rise, facing resistance at 0.6680 and 0.6707. The Australian Dollar’s value is influenced by the Reserve Bank of Australia’s interest rates, prices of resource exports like Iron Ore, and China’s economic health. A positive Trade Balance and good market sentiment can also boost the AUD. The Chinese economic data for November was weaker than expected, especially in consumer spending. Usually, this would suggest caution for the Australian Dollar due to Australia’s close trade ties with China. However, the market is currently more focused on other global factors. The Australian Dollar is stable mainly because the US Dollar is losing strength. There are widespread expectations that the US Federal Reserve will start to lower interest rates next year, a view that has dominated the markets recently. This situation creates a conflict for the AUD, balancing weak local data against a favorable global monetary policy outlook.

Iron Ore and Interest Rate Dynamics

Iron ore futures have been strong, recently trading above $130 per tonne on the Singapore Exchange, providing support for the Aussie currency. The Reserve Bank of Australia kept its cash rate steady at its meeting on December 2nd, signaling no new dovish stance. This stability at the RBA contrasts with the potential for the Fed to cut rates, currently supporting the AUD/USD pair. We have seen this situation before, particularly in late 2024. At that time, concerns about China’s economy were often overshadowed by the market’s focus on changing interest rate policies in the US and Europe. This pattern suggests that global central bank actions can temporarily overshadow local economic data. For traders of derivatives, this mix of signals suggests that range-trading or increased volatility may happen in the next few weeks. Weak Chinese data could limit the AUD/USD’s upside, while the likelihood of US rate cuts provides good support. This creates opportunities for strategies that profit from either a stable market or sudden breakouts, like selling strangles or buying straddles. Given this outlook, it’s wise to use options to manage risk during the holiday period. Buying AUD/USD put options with a strike price around 0.6600 could be a smart way to protect against rising concerns over China’s slowing growth. This approach provides downside protection if market sentiment shifts. In the future, we should closely watch upcoming US inflation and employment figures, as any changes in these could significantly impact currency pairs like AUD/USD. We will also keep an eye out for any new stimulus from Beijing, as major policy moves could quickly alter the outlook. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now