RBA: China risks now almost the central case - AmpGFX
|It does appear that while the RBA has acknowledged stronger growth in China and commodity prices this year, the risk of weaker growth driven by financial sector stress has moved from a tail risk for the RBA to almost its central case, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.
Key Quotes
“The minutes and the RBA SoMP released on 3 August spent considerable attention on the subject and, without spelling it out, the RBA appears to have incorporated a significant risk of an economic downturn and financial upheaval in China coming within its current 2 to three year forecast period; even next year, say no long after the 5-yearly leadership reshuffle later this year.”
“The RBA is more concerned by China risks than most investors in the street; although certainly, it is a fairly mainstream concern.”
“This does make it hard to get comfortably long AUD. But on the other hand, the China cloud is causing the market and the RBA to pay little attention to more current evidence of a pick up in economic growth momentum in Australia, and abroad.”
“There is a risk that the AUD rises suddenly because of a switch in focus from China clouds to domestic economic strength.”
“The RBA minutes said, “Growth in China was expected to ease in 2018 and 2019 because of structural factors such as a declining working-age population, as well as policies to address financial risks. Members noted that the outlook for the Chinese economy remained a significant source of uncertainty. In particular, it was unclear how the authorities would negotiate the difficult trade-off between growth and the build-up of leverage in the Chinese economy. To address risks in the shadow banking sector, the authorities had recently sought to improve coordination among financial regulators and had announced tighter regulatory measures. Members noted that such measures could be difficult to calibrate and that, as a result, financial conditions might tighten by more than expected.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.