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China Will Continue to Weigh on the Aussie

Posted by WorldWideMarkets . on Jul 9, 2013 3:39:00 AM

aussie tradingChina’s announcement that it will cut credit to force change in inefficient industries with overcapacity is going to spill over into the aussie. The statement came Friday from the State Council and laid out how the government will ensure banks support leadership plans to shift the economy to high-end manufacturing. The move will slow growth a tad even as it stabilizes the economy from the previous years of rapid fire growth in factory activity. That is not a bad thing long term and part of the natural economic cycle from a low-end manufacturer to one utilizing higher skills and creating greater end product value with a corresponding increase in the standard of living for the labor force. In the nearer term, the move will impact currencies of countries that have greatly benefited from the explosion in Chinese growth such as Australia. Something the Australians are already very aware of. But the Chinese government will also be careful not to cut off the easy money too soon. They have enough problems with clean water and air quality that they will not want a large section of the population to be unemployed and a potential destabilizing impact on the nation. Though the Chinese brand of capitalism is interesting, the country is still run on communist principles and everyone should have a job rather than maximizing profits. At the very least, that will keep the government hand outs in some key industries forthcoming. Which in turn will put a floor under the aussie selloff at least as much as it relates to China though expect any benefit to be minimal and short term. Overall, the shift in China is just one more weight on the aussie. 


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