Australian Dollar Begins 2023 on Strong Footing Following Chinese Policy Change

The average daily range of the Australian dollar during the first week of the year was over 2% on each day with significant trade. After all the commotion, it ended the week with a 1% gain.

The main external factors that contributed to the volatility looked to be Chinese policy, minutes from Federal Reserve meetings, and US job statistics.

China’s attempt to free itself from the economically crippling “zero-case” COVID-19 regulation appears to be facing several difficulties. Official statistics portray a situation that is under control, but anecdotal information from hospitals and cemeteries points to a more challenging transition.

That said, markets may not experience the anticipated acceleration of Chinese economic activity. A different policy stance from Beijing may ease limitations on some Australian exports, such as coal, as the chilly ties between the two nations may be thawing.

However, the gain to Australia’s trade balance, in this case, might not be very substantial. Since the export limitations started, many of the impacted companies have discovered new markets for their products.

Due to the scenario, many businesses decided to diversify their customer base to reduce the risk of relying too much on one client.

Australia’s trade surplus is now at historic levels, and the November figure will be released on Thursday. According to a Bloomberg survey of economists, the local economy will grow by an additional AUD 11.5 billion ($7.91 billion) in that month.

US dollar fluctuations that have flowed into AUD/USD have been influenced by perceptions about the Fed’s rate path in 2023.

US Dollar Dynamics to Influence Australian Dollar Movements

The Australian dollar is regarded as being connected to global growth because of the nature of the exports that support it. As a result, it is considered a “high beta” currency.

Moves in the AUD/USD rate tend to be more pronounced than those of most other currencies versus the US dollar when the global macroeconomic environment oscillates between a positive and a negative outlook. In light of this, the forecast for the US dollar may continue to influence the Australian dollar.