China’s top leadership body, the Politburo, held a meeting on Tuesday to review the current economic situation and outlined economic priorities for the second half of 2024, the country’s state media reported.
Key Takeaways
The adverse effects of changes in the external environment are increasing.
Effective domestic demand remains insufficient.
There are still many risks and hidden dangers in key areas.
These are issues of development and transformation.
Macroeconomic policies should continue to be implemented more proactively and vigorously.
It is necessary to strengthen business cycle adjustment and implement proactive fiscal policies and prudent monetary policies.
The implementation of identified policy measures needs to be accelerated.
A number of incremental policy measures should be prepared and implemented as soon as possible.
In order to expand domestic demand, it is necessary to focus on increasing consumption.
It is necessary to accelerate the issuance and management of special funds and make effective use of ultra-long-term special government bonds.
It is necessary to increase residents’ income through various channels and enhance the consumption ability and willingness of low- and middle-income earners.
It is necessary to nurture and expand emerging and future industries.
It is necessary to make comprehensive use of a variety of monetary policy tools.
It is necessary to strengthen financial support for the real economy and promote a steady decline in overall social financial costs.
It is necessary to maintain the fundamental stability of the RMB exchange rate at a reasonable and balanced level.
In order to promote stable utilization of foreign capital, we will launch new pilot measures to expand the opening up of the service industry.
It is necessary to actively create new momentum for the development of foreign trade.
Create conditions for accelerating the resolution of debt risks for local financial platforms.
It is necessary to strengthen employment priority policies and focus on hiring key groups such as university graduates.
Market reaction
The Australian dollar has maintained its latest gains following these China news, with AUD/USD up 0.11% from the previous day and trading around 0.6555 at the time of writing.
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another important factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, and Australia’s inflation, growth rate, and trade balance are also factors. Market sentiment, i.e. whether investors are holding riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, and risk-on is positive for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rate levels at which Australian banks can lend to each other, which in turn influences interest rate levels throughout the economy. The RBA’s main goal is to maintain a stable inflation rate of 2-3% by adjusting interest rates up and down. Relatively high interest rates compared to other major central banks support the AUD, and vice versa. The RBA can also influence credit terms using quantitative easing and tightening; the former is negative for the AUD and the latter is positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy heavily influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases the demand for the AUD and makes it more valuable. The opposite is true if the Chinese economy is not growing as expected. Therefore, any surprises, positive or negative, in Chinese growth data often have a direct impact on the Australian Dollar and its pair.
Iron ore is Australia’s largest export, worth $118 billion per year according to 2021 data, with China being the main destination. Therefore, the price of iron ore can be a driving force for the Australian dollar. Generally, when the price of iron ore rises, the AUD also rises as the total demand for the currency increases. The opposite is true if the price of iron ore falls. If the price of iron ore rises, Australia’s trade balance is also more likely to be in surplus, which is also beneficial for the AUD.
The trade balance, the difference between the income earned from exports and the amount paid for imports, is another factor that affects the value of the Australian dollar. If Australia produces exports that are in high demand, the value of the Australian currency will only rise from the excess demand that arises from foreign buyers wanting to buy the exports and the amount they spend on buying the imports. Thus, if the trade balance is positive, the value of the Australian dollar will rise and if the trade balance is negative, it has the opposite effect.
