China’s underwhelming GDP target weighs on AUD and oil

Chinese growth target caution weighs on risk appetite

• China’s GDP growth target is 5%: This was lower than analyst expectations of 5.5% to 6.0%. 
• A rebound in risk appetite has been weighed down: In commodities, metals and energy prices are lower.
• AUD and NZD are underperforming: The negative bias is also reflected in major forex. 
• Rebound in equities is looking more cautious today: A strong rally into the close on Friday is less assured on Monday with European indices mixed and US futures only slightly higher.

China’s GDP target underwhelms 

The Chinese Government lays out its plans for economic growth every year (apart from in 2020, the year that COVID hit).

Last year, the target for GDP growth was around 5.5%. The graph below from Reuters shows that actual growth of c. 3.0% was significantly lower than the target.

It seems that this year, the Chinese Government is being more cautious with its target.

Chinese Premier Li Keqiang presented the growth plans to Parliament on Sunday. However, the target of 5% was lower than market expectations of around 5.5% to 6%.

The lower growth target also came with the issuance of 3.8 trillion yuan in local bonds (how the government funds its infrastructure investment). According to ING, this was also lower than expected.

This all plays into a more cautious approach of the Chinese government, given the situation for the global economy.

A negative bias to risk appetite

As markets have responded to this news, there has been a negative bias to risk appetite.

This is showing in commodities markets, with the oil price trading lower today. Early weakness in metals prices has unwound.

It is also showing in the underperformance of the AUD. The Aussie is considered a pro-cyclical (therefore higher risk) commodity currency whose performance is closely tied to the outlook for China. 

Oil rally stunted, AUD struggling

There was a sharp rally on oil as risk appetite rebounded firmly on Friday. However, this move has been dragged back this morning. 

There was also a positive move on the AUD into the close on Friday. However, the AUD is the worst-performing major currency today. 

Price reaction in the days ahead will show how important this news from China will be for these markets moving forward.

Brent Crude oil (UKOUSD) 

A huge intraday rally into the close on Friday looked to be an indication of a significant shift to a more positive outlook. However, the early move today is lower and is stunting the rally. 

The market is backing away from the February lower high resistance at $86.90. If this resistance is sustained in the coming days, it will reflect the continuation of a medium-term trading range on oil.

• The price trading above rising moving averages is encouraging for the near-term outlook.
• The daily RSI has been improving but has turned lower again just under 60. This likely reflects the continuation of a trading range.

However, if the market can brush off the early slip lower this morning, it will be an important signal that recovery potential is building.

Support at $82.50 will be an important higher low.

AUD/USD

The outlook for the AUD is looking less encouraging. 

There is a downtrend and correction over the past month which has dragged the market back to test the important support band 0.6585/0.6685.

The early move lower today is negating much of Friday’s strong bull candle. The near to medium-term corrective pressures continue.

• The price is trading under the 21 and 55-day moving averages
• The daily RSI is consistently stuck under 50.

This all still points towards selling into near-term strength. The initial resistance of last week’s high at 0.6783 will be a gauge in the coming days.

The technical outlook points towards further pressure on the 0.6585/0.6685 support band. 

However, we are mindful of tomorrow’s Reserve Bank of Australia monetary policy meeting. This will likely have a significant impact on the outlook for the AUD. 

Support and resistance levels for Forex, Commodities, and Futures/Indices

Data: MT5/IXOne

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