On Monday, July 22, the People’s Bank of China (PBoC) is expected to announce the one-year and five-year Loan Prime Rates (LPR). Economists predict that the rates will remain steady at 3.45% and 3.95%, respectively. However, any unexpected cut in the rates could potentially fuel demand for the Australian dollar. Lower lending rates could lead to an increase in credit demand and consumption, ultimately boosting the Australian economy through trade relations with China.
China plays a significant role in the Australian economy, accounting for one-third of its total exports. With Australia having a trade-to-GDP ratio of over 50%, any improvement in trade terms with China could have a substantial impact on Aussie exports and trade-related jobs. Approximately 20% of the Australian workforce is employed in trade-related sectors, highlighting the importance of favorable trade agreements with China.
Amidst uncertainties surrounding China and the RBA rate path, it is crucial to consider US economic indicators. The forecast for the S&P Global Services PMI in July suggests a slight decrease from 55.3 to 55.0. Weaker-than-expected numbers could reinforce investor expectations of multiple Fed rate cuts in 2024. The US services sector plays a vital role in the economy, and any drastic decline in the PMI could raise concerns about a potential economic downturn.
On Thursday, July 25, economists will closely examine US labor market data and Q2 GDP numbers. Stronger Q2 GDP figures could alleviate fears of a hard landing for the economy. However, labor market conditions may have a more significant impact on the Fed rate path. Projections indicate a slight increase in Continuing Jobless Claims, which could potentially affect wage growth and disposable income. A decrease in consumer spending due to lower disposable income could mitigate demand-driven inflation and support the likelihood of Fed rate cuts in September and December.
The upcoming announcements from the PBoC and the US economic indicators will play a crucial role in shaping the Australian economic landscape. It is essential for policymakers and investors to closely monitor these developments to anticipate potential impacts on the Australian economy and adjust their strategies accordingly.