Australian Dollar Plummets -0.7% against Canadian Dollar after Chinese Credit Rating Downgrade

Australian Dollar Slumps as Moody’s Worries about Chinese Economy

As well as direct Australian news weakening Australian Dollar demand today, the AUD has also slipped due to Moody’s downgrading its Chinese credit rating.

For the first time in nearly 20 years, the company cut its Chinese credit score from A1 to Aa3. In other scales, this is equivalent to a cut from AA- to A+. Commenting on the decision, Moody’s officials stated that;

‘China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. Rising debt will erode China's credit metrics, with robust growth increasingly reliant on policy stimulus.’

The news has raised concern about Australia’s economic future, as both the Australian and Chinese economies are interlinked due to their close trade links. If other credit agencies also downgrade their ratings for China then the Australian Dollar could fall further against the Canadian Dollar.

Australia’s poor domestic data has shown a -0.7% slide in construction activity, which has raised further concerns about an undersupply of housing boosting national house prices.

The Australian housing market has been labelled as ‘overheating’, so further drops in construction only raise concerns about increasingly unaffordable homes.

Looking ahead, the next Australian economic data will also cover the housing market, consisting of building permits for April on the coming Tuesday. Permits previously rose by 13.4%, which was considered positive for the housing market.

Another rise close to the previous figure or above it could restore demand in the Australian Dollar to Canadian Dollar exchange rate.

Canadian Dollar Rallies as Crude Oil Costs Touch $51.30 Per Barrel

The price of crude oil has risen progressively over the week, trending around $51.30 per barrel today. This has raised confidence in the Canadian Dollar, pushing it up by over 0.6% against the Australian Dollar.
As well as oil costs, a Bank of Canada (BOC) interest rate decision has also influenced the CAD today.

The BOC has left interest rates at 0.5%, but officials have made a few optimistic remarks about the national economy.

Officials stated that;

‘Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions’.

Less positively, however, the BOC stated that policy measures to lower housing prices ‘have yet to have a substantial cooling effect on housing markets’. As with Australia, Canada is struggling with a hot housing market, so this statement from the BOC has limited CAD AUD gains.

Friday will bring the Canadian budget balance for March. If this shows a significant surplus then the Canadian Dollar could remain dominant against the unstable Australian Dollar.