(Giles Coghlan LLB, Lth, MA – HYCM)
The news this week that the IMF lifted its global growth projections was largely placed at the feet of China’s Covid Zero pivot. The IMF raised its 2023 growth forecast to 2.9% from 2.7% citing China’s re-opening as a key reason.
Inflationary forces?
The news over China’s pivot has been gathering pace since the end of last year. Remember that China’s command economy would mean abrupt u-turns are problematic from a messaging point of view. The reaction to the Covid protests around the same time the world cup was broadcasted, when people were freely mingling, was about as close to a pivot being signaled as we were going to see. However, Kristina Georgevieva, the head of the IMF, pointed out that there is a double-edged nature to China’s re-opening. It may be inflationary. So, if demand for oil once again rises and that boosts oil prices then that also increases global inflationary pressures.
A fair point to watch
It is not impossible to see a sudden surge in demand domestically in China too as restrictions being lifted allow pent-up savings to be spent. Last year China’s trade surplus rose 31% y/y as exports increased by 7%, but imports only rose by 1%. This reflected the opening up of other major world economies even as China remained under a range of restrictions.
China’s headline inflation print for December 2022 was at 1.8% and that is down from a 2.8% peak in September 2022, so there is no sign of major concerns there just yet. However, it will be worth watching.
China’s re-opening can benefit Oil
So, keep an eye on oil prices too as this will be a key inflationary force. Higher oil generally means higher inflation forces as costs are injected into economies. Oil markets have formed a key technical Head and Shoulders bottom on the daily chart and news of China being back for business could well be the catalyst oil needs to break higher over the coming weeks. See here for an explainer video on how to trade the Head and Shoulders pattern.
AUD/USD unlocks new 8-month high[Video]
(Melina Deltas, CFTe – XM)
AUDUSD surged to a fresh eight-month high of 0.7157 earlier today, boosting the rebound off the 0.6985 support level. The price is creating a steep bullish tendency after it bottomed at 0.6170 with the technical oscillators standing in a positive region. The MACD is extending its move above its trigger and zero lines, while the RSI is approaching the overbought region.
More increases could open the way towards the 0.7280 resistance, taken from the high in May 2022, while if the bulls hold control and move higher they could reach the inside swing high of 0.7555, registered in October 2021.
Alternatively, a drop lower could meet the 20-day simple moving average (SMA) near the 0.6985 support level. A step below the uptrend line could change the outlook to neutral, challenging the 0.6870 barriers and the bullish crossover within the 50- and the 200-day SMAs at 0.6815.
To summarize, AUDUSD is currently strongly bullish; however, any moves beneath the 200-day SMA could switch the bias to bearish.
