Breaking: China’s October CPI inflation slows to 0.7% YoY, below the 0.8% forecast

In China, the Consumer Price Index (CPI) showed inflation easing to 0.7% year-on-year in October from September’s 0.9% increase, according to figures the National Bureau of Statistics of China released on Monday. For the period under review, the market had expected a rise of 0.8%.

Further updates to follow.

Australian Dollar: Frequently Asked Questions

Which factors shape the Australian Dollar’s movements?

Interest rates set by the Reserve Bank of Australia (RBA) rank among the strongest influences on the Australian Dollar (AUD). Australia’s abundant natural resources also make the price of iron ore, its largest export, a key driver of the currency. Other important considerations include economic conditions in China, Australia’s biggest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor appetite for risk matters too: a shift towards riskier assets, known as risk-on sentiment, supports the AUD, while a preference for safe havens reflects risk-off sentiment.

How do Reserve Bank of Australia policy decisions affect the Australian Dollar?

By setting the interest rate at which Australian banks can lend to one another, the Reserve Bank of Australia (RBA) affects borrowing rates across the economy and, in turn, the Australian Dollar (AUD). Its primary objective is to keep inflation stable at 2-3%, raising or lowering interest rates to achieve this. Rates that are relatively high compared with those of other major central banks support the AUD; relatively low rates have the reverse effect. Credit conditions can also be influenced through quantitative easing or quantitative tightening. While easing weighs on the AUD, tightening supports it.

Why does China’s economic performance matter for the Australian Dollar?

As Australia’s biggest trading partner, China has a substantial bearing on the Australian Dollar’s (AUD) value. A healthy Chinese economy buys more Australian raw materials, goods and services, increasing demand for the AUD and lifting the currency. When China’s growth falls short of expectations, the reverse occurs. Consequently, upside or downside surprises in Chinese growth figures often feed directly into movements in the Australian Dollar and its currency pairs.

Why do iron ore prices influence the Australian Dollar?

With annual exports worth $118 billion, according to 2021 data, iron ore is Australia’s largest export, and China is its main destination. This makes iron ore prices an important potential influence on the Australian Dollar. A rise in the commodity’s price generally lifts overall demand for the currency, pushing the AUD higher, while a price decline has the opposite effect. Higher iron ore prices also tend to improve the likelihood of Australia recording a trade surplus, providing further support to the AUD.

How can the trade balance strengthen or weaken the Australian Dollar?

Another influence on the Australian Dollar is the trade balance: the difference between a country’s export earnings and its import payments. Strong overseas demand for Australian exports can lift the currency when the demand generated by foreign buyers exceeds Australia’s spending on imports. A positive net trade balance therefore supports the AUD, whereas a negative balance has the reverse effect.

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