Australian Dollar Bolstered by News of Looming Chinese Stimulus Announcement

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The Australian Dollar was in recovery mode through the midweek session following news China would likely announce a major fiscal stimulus on the weekend.

The Pound to Australian Dollar exchange rate retreated to 1.9424 after China's State Council Information Office (SCIO) said on Wednesday it would make a major announcement on Saturday, which investors think will be a major stimulus.

The Australian Dollar to U.S. Dollar rate recovered to 0.6737: "AUD/USD rose sharply on the announcement that China will announce a fiscal package on Saturday," says Kristina Clifton, an analyst at Commonwealth Bank of Australia.

News reports suggest China's Finance Minister Lan Fo’an will introduce moves to strengthen fiscal policy to shore up growth and answer questions from reporters, according to the notice.

The Australian Dollar's gains have moderated by the time of writing, and investors will remain nervous about the disappointment that China will underwhelm, which can limit the AUD's recovery potential in the coming weeks.

The Aussie Dollar came under pressure on Tuesday after a much-hyped announcement by the National Development and Reform Commission (NDRC) turned into a damp squib that offered no new stimulus measures, whereas investors were speculating a multi-trillion yuan bonanza would be unleashed.

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But seasoned China watchers said at the time that any big stimulus would always be the remit of the SCIO and is not the business of the NDRC.

HSBC's China economists point out that the NDRC is not the organisation that issues such announcements and that a fiscal boost is more likely to be announced by the SCIO, as it was in 2008.

"It seems there was some disappointment that China’s National Development and Reform Commission did not announce additional fiscal stimulus measures. The AUD was lower," says Daragh Maher, Head of Research for the Americas at HSBC. "Some patience is required."

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The Australian Dollar fell on Tuesday after the 'big bang' stimulus moment for Chinese-linked assets failed to materialise.

Instead, the NDRC, the country’s economic planning agency, only committed to speeding up spending and reiterating plans to boost investment and increase direct support for low-income groups and new graduates.

Saturday's announcement by the SCIO now forms the major highlight for the coming days and could ignite the Aussie Dollar and associated currencies when markets open on Monday.

Economists at Morgan Stanley and HSBC expect 2 trillion yuan ($283 billion) in stimulus, while Citigroup thinks the amount will be 3 trillion yuan.

Economists have speculated measures such as support for local government financing, infrastructure investment, a consumption boost and bank recapitalisation.