While global markets watched closely for another joint move by Washington and Tokyo to prop up the Japanese yen this week, Australian dollar traders have been laser-focused on the actions of another economic power: China.
Some analysts view the Australian currency as particularly sensitive to policy moves in Beijing. If China intervenes to boost domestic growth, that could also lift the Australian dollar, the theory goes.
But in reality, the currency’s exposure to the world’s second-largest economy is more selective than commonly assumed, as the link mostly depends on Chinese commodity demand, Goldman Sachs said in a report released on Tuesday.
At first glance, the Australian dollar “appears among the most China-sensitive” of the G10 currencies, a basket of the world’s most heavily traded currencies, according to Lexi Kanter, an analyst at the investment bank.
Goldman ranked Australia as the G10 economy most exposed to an acceleration in Chinese final domestic demand, reflecting both direct exports and Australian inputs used by third countries to produce goods ultimately sold to China.
However, much of the apparent connection between the Australian dollar and the yuan reflects their shared response to broad movements in the US dollar rather than a purely China-specific signal, according to Kanter.
After controlling for the US dollar, only the Australian and New Zealand dollars retained a meaningful positive relationship with the yuan, although the link became “notably weaker”, the analyst said.
