AUD/USD Tests the 2025 Low at 0.6350 After Soft China Inflation Data
Last week AUD/USD made a bearish break after 2 weeks of consolidation, which sent this pair toward this year’s low, ahead of today’s soft inflation report from China.
The AUD/USD pair has been under bearish pressure since October, driven by market anticipation of Australia’s Q3 GDP report, which pointed toward a slowing economy. After breaking below the 0.65 level, the pair stalled and began consolidating around this key threshold. However, the consolidation phase gave way to further declines, with the pair heading toward the next significant support level at 0.6350, marking the lowest point for 2024.
AUD/USD Chart Daily – Sellers Prevailed Last Week
Despite hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock and stronger-than-expected retail sales data last week, bearish momentum persisted. The pair’s drop below 0.65 reflected concerns stemming from disappointing Q3 GDP figures.
Weakness in Australian Q3 GDP Highlights Structural Challenges
Australia’s Q3 GDP report underscored ongoing economic struggles, with particular weakness in household consumption. Key details included:
- Flat Household Expenditure: Household spending, which represents half of the GDP, showed no growth, contributing zero percent to overall economic expansion.
- Government-Driven Growth: Government spending remained the primary driver of economic activity, highlighting challenges in the private sector.
- Disappointing Growth Figures: Real GDP growth (seasonally adjusted) was recorded at 0.8% year-over-year, falling short of the 1.1% forecast and lower than the 1.0% growth in the previous quarter.
This combination of lackluster private sector performance and reliance on government expenditure has raised concerns about the sustainability of Australia’s economic growth, pressuring the AUD/USD pair further.
November China CPI (Consumer Price Index):
- CPI +0.2% year-over-year (y/y), below the expected +0.5%
- Decreased from +0.3% in October, indicating weaker-than-expected consumer inflation.
- Month-over-month (m/m) CPI dropped -0.6%, worse than the expected decline of -0.4%, signaling continued weakness in consumer demand.
- Previous (m/m) CPI was -0.3%
November China PPI (Producer Price Index):
- PPI -2.5% y/y, better than the expected -2.8% decline
- While the PPI contraction was less severe than anticipated, it still reflects persistent deflationary pressures in the industrial sector, driven by falling production costs.
The latest data reflects ongoing deflationary trends in the Chinese economy, characterized by weak domestic demand and declining costs across various industries. Despite government stimulus efforts, including a significant package aimed at reducing local government debt, both producer and consumer prices remain under pressure to fall. This prolonged period of deflation poses several challenges, such as reduced business profits, potential stagnation in wages, and increasing real debt burdens. These factors could hinder economic recovery and contribute to broader economic stagnation.
AUD/USD Live Chart
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