Credit Agricole notes some positive developments for the Australian Dollar (AUD) based on recent private-sector Capital Expenditure (CAPEX) data. However, the bank advises that investors should still proceed with caution given external risks, particularly from China's economy.
Strong AU CAPEX Data: Australian private-sector investment showed robust growth in Q2, increasing by 2.8% quarter-over-quarter. Particularly, spending on equipment, plant, and machinery, which is a crucial element for real GDP growth, rose by 1.9% QoQ.
AUD's Response to Domestic and Chinese Data: The AUD got a lift not only from strong local investment data but also from slightly better-than-expected Chinese economic indicators.
Chinese Risks Remain: Despite some better news, concerns persist about China’s property sector, especially as several developers reported weak earnings. China’s official manufacturing PMI is still below the 50-mark, suggesting contraction and hinting at the ineffectiveness of earlier policy measures to stimulate growth.
Credit Agricole acknowledges that the recent strong AU CAPEX data offers some optimism for the AUD. Nevertheless, ongoing concerns related to China's economic landscape warrant a cautious approach. While Australia's economy may show signs of resilience, external factors, particularly those from its major trading partner China, can still pose significant risks to the AUD's performance in the near term.