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The Australian Dollar is stabilising near long-term lows against the Pound and Euro while extending a nascent recovery against the U.S. Dollar.
The Aussie Dollar found some support following news that the Chinese government has set an ambitious GDP growth target of "around 5%" for 2025, marking the third consecutive year at this level.
The AUD can gain support to the extent that these ambitions improve China's economic outlook.
"The AUD is often seen as a proxy that traders use to express their views on China, given our tight trade relationship and deep, liquid FX market," says Luci Ellis, Chief Economist at Westpac Group.
The 5% growth target was announced at the annual meeting of the National People’s Congress (NPC), where Chinese authorities gather to strategise economic priorities for the year ahead.
The lofty target reflects Beijing’s determination to ramp up support for the economy amidst ongoing economic challenges, including a sluggish property sector, weakened private sector confidence, and risks from U.S. trade tensions.
To boost fiscal spending, the government will borrow more, with the official fiscal deficit raised to 4% of GDP, up from 3% in 2024.
The government will issue CNY1.3 trillion ultra-long special sovereign bonds, an increase from last year’s CNY1 trillion, primarily for infrastructure and consumer spending.
CNY500 billion special sovereign bonds will be injected into state-owned banks to encourage lending, particularly to the private sector and real estate.
The local government special bond quota increased to CNY4.4 trillion, with part of the funds allocated to addressing local government debt concerns and infrastructure projects.
A CNY300 billion fund from sovereign bonds will be used for a trade-in programme, subsidising big-ticket consumer goods such as home appliances and cars.
The Australian Dollar has fallen amidst a deterioration in global investor appetitate linked to a selloff in U.S. stocks as U.S. President Donald Trump pursues an aggressive trade tariff agenda.
Above: AUD vs. GBP (top) and the S&P 500, confirming a strong correlation.
The interplay in weakness stemming from the U.S. and support from China confirms AUD to be highly leveraged to external developments at present.
The currency's recovery should build up some steam if Trump rows back on tariffs placed on Canada and Mexico in acknowledgement of the sharp fall in domestic stocks and fears of an economic slowdown.
Trump could offer Canada and Mexico a compromise on tariffs as early as Wednesday, Howard Lutnick, the U.S. Commerce Secretary, said.
Lutnick revealed in an interview with Fox News that Donald Trump is planning to "work something out" with Canada and Mexico.