China’s May activity data were mixed. Retail sales fell 0.6% year-on-year, missing a 0% forecast and reversing April’s 0.2% rise, while industrial production grew 4.5% against expectations of 4.3% and after 4.1% previously. Fixed asset investment weakened to -4.1% year-to-date year-on-year, compared with a -2.0% consensus and April’s -1.6%. Following the release, AUD/USD was 0.18% lower on the day at 0.7060.
The figures matter for the Australian Dollar because China is Australia’s largest trading partner and shifts in Chinese demand can affect Australia’s growth and inflation outlook, even if the RBA does not set policy on Chinese data alone. On the charts, AUD/USD remained capped below the 100-day SMA, with the average marked at 0.7085, while the RSI sat around 44 versus the neutral 50 level. Retail sales track the value of goods sold by retailers and are widely used as a gauge of consumer spending; higher readings are typically associated with a firmer CNY, and lower readings with a softer one. Inflation is commonly assessed via CPI, expressed on MoM and YoY bases, with central banks often targeting core inflation near 2%.
China Slowdown and the Australian Dollar
Recent data from China continues to signal a slowdown, which is creating headwinds for the Australian dollar. May’s retail sales grew by only 2.3%, missing the 3.0% forecast and showing that consumer spending there remains weak. As China is our largest trading partner, this subdued demand directly dampens the outlook for the Aussie.
We see this impact directly in commodity markets, a key driver for the AUD. Iron ore prices have recently slipped to around $105 per tonne, down from over $115 last month, reflecting concerns over China’s struggling property sector and lower steel output. This trend suggests less demand for Australia’s key exports, capping any potential rallies in the currency.
Trading Strategies for AUD/USD
From a trading perspective, the AUD/USD pair is struggling below the key 50-day moving average, now sitting at 0.6620. The Relative Strength Index (RSI) is hovering below the 50 mark, indicating that sellers still have control for now. We believe a sustained break above this moving average is needed to signal a meaningful shift in momentum.
Given this backdrop, we are considering strategies that profit from either a continued slide or range-bound price action in AUD/USD. Buying put options with a strike price around 0.6500 could be a straightforward way to position for further weakness into July. This approach offers a defined risk while capitalizing on potential downside moves.
For those expecting the Aussie to remain capped rather than fall sharply, selling out-of-the-money call spreads presents another option. A strategy involving selling the 0.6650 call and buying the 0.6700 call for July expiration would collect a premium if the AUD/USD stays below that level. This can be an effective way to generate income in a market that we believe has limited upside potential.
