Fundamental Analysis

Aussie Stands Tall after Chinese GDP Growth Surpasses Expectations

Typography

China, the world's second largest economy and a driver of the emerging markets, has overperformed in terms of growth in the second quarter of the year, proving relief to policymakers who are currently engaged in efforts to limit financial risks from soaring debt levels and a brewing property bubble. Following the statistics, the Australian dollar bounced higher, reaching a more than one-a year high.

According to the National Bureau of Statistics of China, the Chinese economy grew at 6.9% year-on-year in the second quarter, beating the target of 6.5% set by the government and surprising analysts who anticipated that GDP will expand by 6.8%. Quarter-on-quarter, GDP growth was in line with expectations at 1.7% but was higher than the 1.3% estimated in the previous quarter.

Part of the expansion was attributed to the manufacturing sector, where the industrial output rose by 7.6% in June year-on-year, restoring the two-year high level reached in March. The figure was far above the forecast of 6.5% which was set at May's reading.

Other data out of China involved fixed asset investments and retail sales. The former was above the forecast but remained stable at the previous level of 8.6%, while the latter increased by 11%, higher than the 10.6% anticipated and the rate of 10.7% observed in May.

Although the above numbers are evidence of a stabilizing and sustainable economic growth, concerns remain around the high-leveraged housing market, where prices are also rising rapidly. Based on OECD calculations, the debt of non-financial entrepreneurs in China was the highest among major economies at 170% of GDP in 2016. To cool the overheated property market, the People's Bank of China (PBOC) has recently decided to restrict liquidity by tightening monetary policy, following the Fed's rate hike in March. Particularly, the PBOC has mainly targeted the short-term rates, increasing the seven-day repo rate (repurchase agreement rate) to a two-year high of 3.18% in the beginning of May.

In the forex markets, the release of the data lifted the Australian dollar against its US counterpart. The aussie surged immediately by 0.73%, hitting a near 15-month high of $0.7833.

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