Aussie dollar slides over Chinese fears

The Australian dollar is off versus the US dollar, due to concern that the slowdown in China will have a knock-on effect for Australia.

The Australian dollar has gone from bad to worse as the credit market in China appears to become tighter. Overnight the People’s Bank of China stated that banks operating in the country need to sort out their own problems and cannot depend on the central bank for assistance. The rapid expansion of the Chinese economy in recent years was fuelled by domestic banks, and the credit lines are no longer as liquid as they once were. This is playing on traders’ minds.

Goldman Sachs has cut its growth target for China to 7.4% and 7.7% for 2013 and 2014 respectively. The investment bank cited the declining credit conditions for the downgrade of growth forecasts.

We are not expecting any economic updates from the US today, but traders are already looking ahead to economic updates over the next two days. If the US reveals strong economic data we could see traders sell the Australian dollar and buy the US dollar, as it could be a sign that the Federal Reserve will tighten their monetary policy.

Spot FX AUD/USD chart

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