Kiwi Dollar (NZD) and Aussie Dollar (AUD) Outlook Continues Unclear Following China Outlook Downgrade

March 4, 2016 - Written by Toni Johnson

STORY LINK Kiwi Dollar (NZD) and Aussie Dollar (AUD) Outlook Continues Unclear Following China Outlook Downgrade

Moody's Downgrades China Outlook, AUD and NZD Predicted to Fall

Just when global equities markets were getting over the disappointing Chinese Gross Domestic Product data which was published at the start of the year and the downward shift in investor sentiment which followed, leading credit ratings agency Moody’s has re-ignited investors’ fears regarding the world’s second largest economy.

Moody’s announced in a report out yesterday that it was downgrading its outlook for China’s economy from ‘stable’ to ‘negative’, stoking concerns of a ‘hard landing’ for the Asian nation’s growth rates. The credit ratings agency’s assessment predicted that, ‘without credible and efficient reforms, China's GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable.’

Ominously, the report went on to forecast that in such a situation, ‘government debt would increase more sharply than we currently expect’, raising the spectre of a Chinese bond market meltdown and startling investors.

AUD, NZD Gain against Sterling but Will the Uptrend Last?

Global share markets shed support in the aftermath of the statement from Moody’s, with London’s benchmark FTSE 100 falling by 0.31% on the day. American exchanges followed suit, with the broad ranging S&P 500 index trading down by -0.35% by the middle part of the US session. On the currency markets, the risk-driven Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD) recorded moderate gains against Sterling, but these are by no means guaranteed to stick given increased fears regarding China’s creditworthiness.

The Aussie and Kiwi Dollars were however provided with some assistance on the day by the latest ISM survey of America’s vast services sector which printed at a higher than expected level of 53.4, pointing to healthy levels of expansion. This go-ahead showing from a key part of the world’s premier economy in part offset the negative news from China in the short term.

However, the main risk event of the week is still to come; this afternoon’s US Non-Farm Payrolls data is always closely-monitored and analysts forecast that the official data will show that almost 200,000 new positions were generated in the States last month. Such a result could provide the risk-driven Commodity Dollars with further support.

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