The AUD/USD pair is under immense pressure after a recent bounce back from one-week lows. The pair has come under pressure amidst weakness in the Australian dollar triggered by weak Chinese economic data.
Strength in the U.S Dollar after a recent sell-off has also continued to pile pressure on the AUD. The pair had initially rallied to one-week highs after employment data for March indicated the economy added mode jobs than initially feared.
The pair has consequently lost a substantial amount of the gains after it emerged that the Chinese economy contracted much faster in the first quarter than initially feared. A plunge from the 0.6383 level to the 0.63230 level raises serious doubt about the strength of the recent bull run.
The Australian dollar is always vulnerable to Chinese economic data, given that the country exports a good chunk of its raw materials to China. Conversely, contraction in the Chinese economy often has negative pressure on the AUD in the forex market.
Chinese Economy Contraction
Immediate data indicates that the Chinese Gross Domestic Product shrunk by 6.8%, worse than 6.5% expected. A slowdown in the Chinese economy also means that Australia might not have exported as much raw materials as it ought to, thus the weakness in the Australian dollar.
In addition to a decline in GDP, China also saw its industrial production shrink by 1.1% in March, mostly attributed to the Coronavirus pandemic. Retail sales also plunged in the second biggest economy in the world by 15.8% worse than 10% expected.
Weak economic data raises serious doubt about the Chinese economy, which has been crippled by the COVID-19 Pandemic. Fears that the slowdown could have a ripple effect on the Australian economy could as well explain the weakness in the Australian dollar.
However, the AUD/USD pair is still higher, amidst the recent pullback, considering that it plunged to decades low at the peak of the coronavirus pandemic in China in March.