Dollar up as Chinese growth matches predictions
China's year-on-year GDP growth for the second quarter slowed to 7.5 per cent, matching forecasts, from 7.7 per cent in the previous quarter, as weaker demand softened output and investment.
The new figures meant China was on track for its slowest growth in 23 years, and its economy had slowed in nine of the past 10 quarters.
A range of other data released on Monday was mixed. Retail sales for June came in above expectations, growing 13.3 per cent year-on-year, but industrial production was 0.2 per cent lower than forecast, reaching 8.9 per cent. Fixed-asset management was slightly below expectations at 20.1 per cent.
China's real estate investment was 20.3 per cent higher in the first half of the year than in the previous corresponding period and property sales soared by 43.2 per cent.
The Australian dollar rose to US91.22¢ on Monday, after sinking to US89.99¢ late on Friday on comments reportedly made by China's finance minister that authorities would be comfortable with slower growth of 7 per cent for the year. The comments were denied by China's central government and the quoted growth figure revised to 7.5 per cent. The dollar was buying US91.03¢ late on Monday.
The Australian sharemarket closed slightly higher. The benchmark S&P/ASX200 Index gained 7.2 points to finish Monday at 4981.1. The broader All Ordinaries Index added 8.1 points to end the day at 4965.6 points.
Patersons Securities' economist Tony Farnham said that despite relief buying on the sharemarket investors would expect the slowdown in growth to continue.
"What people will continue to watch is trends in commodity and oil prices and the other indicators that are much more at the coal face such as the PMIs," Mr Farnham said. "They are the things that will be driving our resource majors for the next little while."
Australian mining companies have been among the biggest beneficiaries of China's appetite for natural resources.
Rapid growth saw China replace Japan as the world's second-largest economy in 2010. But moves by the Chinese government towards economic reforms away from investment and towards consumption have sparked fears of a hard landing.
Japan's largest brokerage Nomura lowered its 2014 GDP forecast for China to 6.9 per cent on Monday, citing expectations of a lower government forecast.
HSBC's chief economist for Australia, Paul Bloxham, said China's growth remained strong compared to that of Western counterparts. "Even though China's growth is slowing, Australia's still tied to the fastest-growth part of the global economy in that it's tied to Asia, which is going to support Australia's growth," Mr Bloxham said. "It seems that Chinese authorities are very much focused on sustainable quality growth rather than pump-priming their economy, and that's actually a positive thing for Australia in the medium term."
RBS currency strategist Greg Gibbs said the dollar was under pressure as a commodity currency.
Frequently Asked Questions about this Article…
China's year-on-year GDP growth for Q2 slowed to 7.5% from 7.7% the previous quarter, matching analyst forecasts. That matters because the slowdown — part of a trend of slower growth in nine of the past 10 quarters and the slowest pace in 23 years — can affect global commodity demand, the Australian dollar and resource-focused stocks.
The Australian dollar rose to about US91.22¢ on the day the figures were released (after falling to US89.99¢ the previous Friday). Late on Monday it was buying around US91.03¢. Market moves were also influenced by conflicting comments about Chinese growth targets and broader pressure on the AUD as a commodity currency.
The Australian sharemarket closed slightly higher. The benchmark S&P/ASX200 gained 7.2 points to finish at 4,981.1, while the All Ordinaries Index added 8.1 points to end at 4,965.6 — reflecting some relief buying after the GDP numbers matched expectations.
Australian mining and resource majors are among the biggest beneficiaries of Chinese demand, so they are most exposed to slower Chinese growth. Analysts say trends in commodity and oil prices and activity indicators like PMIs will drive performance for resource companies.
Yes — data was mixed. Retail sales in June grew 13.3% year-on-year (above expectations), industrial production rose 8.9% but was 0.2 percentage points below forecasts, and 'fixed-asset management' came in slightly below expectations at 20.1%. Real estate investment rose 20.3% in the first half and property sales jumped 43.2%.
Some forecasters have trimmed expectations. For example, Japan's Nomura lowered its 2014 GDP forecast for China to 6.9%, citing expectations of a lower official government forecast. HSBC's Australia chief economist Paul Bloxham noted that although growth is slowing, China remains strong relative to Western counterparts and that a focus on sustainable, quality growth could be positive for Australia over the medium term.
Investors should monitor commodity and oil prices, purchasing managers' indexes (PMIs) and other activity indicators, since these are closely tied to demand from China and will influence Australian resource companies and the broader market, according to analysts quoted in the article.
The article indicates analysts expect the slowdown to continue. Patersons Securities' economist Tony Farnham said investors should expect the slowdown in growth to persist, even though matching forecasts prompted some relief buying in markets.
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