The China Stimulus' Effect on the Aussie

11/13/2008 9:31 am EST

Focus: FOREX

John Jagerson

Co-Founder and Contributor, LearningMarkets.com

I suppose it is a little anti-climactic to propose that the dramatic $586 billion Chinese stimulus package announced this week is not likely to have an impact on the Aussie. The Australian currency has been hit by deleveraging carry traders, falling commodity prices, and plummeting demand for goods and materials from Asia this year, and that situation is not likely to change despite the measures taken in Beijing.

Trying to buy your way out of a recession or economic collapse does not typically work, and the traditionally slow-moving and centralized infrastructure in China is further disadvantaged in dealing with its own economic problems. With declining demand in the US and Western Europe, manufacturers and exporters in China are still likely to see cutbacks in the long term, which means reduced demand from Australia.

The stimulus may help to slow that decline, but ultimately, the global economy is likely to impact the Australians more than anything else. Traders are making their bets today on what they think the stimulus is likely to do for demand from Australia, and the news doesn't look good. The AUD is losing ground to most of the majors after an initial rally at the beginning of the week.  At this point, it looks like the bears are still in control of the AUD, which should help AUD/JPY and AUD/USD shorts in the near term.

By John Jagerson, of PFXGlobal.com and LearningMarkets.com.

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