China accounts for a third of Australia's exports and 20% of Australia's workforce is employed in trade-related jobs. Improving terms of trade could impact job creation and wage growth. An upward trend in wage growth could encourage consumer spending and demand-driven inflation. The net effect could be a more hawkish direction for RBA rates, raising borrowing costs and reducing disposable income.
The Chinese economy is a consideration for the RBA. RBA Governor Michelle Block asserted at a press conference in March that the forecast takes into account the impact of China's economic downturn.
Economists expect the central bank to keep the LPR unchanged, but markets are waiting for fiscal stimulus from the Chinese government. Any meaningful economic stimulus from the Chinese government could have a bigger impact on buyer demand for the Australian dollar than additional measures from the People's Bank. Therefore, investors should also monitor stimulus talk from Beijing.
US Economic Calendar: Chicago Fed National Activity Index
The Chicago Fed National Activity Index (CFNAI) will be the focus of investors' attention on Monday. The index has 85 components and reflects economic activity and inflationary pressures.
Economists expect the CFNAI to rise from 0.05 to 0.09. The better-than-expected numbers would support hopes that the U.S. can avoid recession. Additionally, the upward trend in CFNAI could further reduce investors' bets on multiple Fed rate cuts in 2024.
Recent U.S. economic data, including inflation and retail sales, have refuted the Fed's bet on a June interest rate cut. The numbers also dampened expectations that the Fed would cut interest rates in September.