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Daily Pivots: (S1) 0.6666; (P) 0.6689; (R1) 0.6718; More...

Intraday bias in AUD/USD remains neutral for consolidation above 0.6657 temporary low. Further decline is expected as long as 0.6758 resistance holds. Below 0.6657 will resume the fall from 0.6941 short term top to 0.6621 structural support. Decisive break there will pave the way back to 0.6348 support next. Nevertheless, considering bullish convergence condition in 4H MACD, firm break of 0.6758 will turn bias back to the upside for retesting 0.6941 instead.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with rise from 0.6269 as the third leg. Firm break of 100% projection of 0.6269 to 0.6870 from 0.6340 at 0.6941 will target 138.2% projection at 0.7179. However, break of 0.6621 support will argue that rise from 0.6269 has completed and bring deeper fall back to 0.6269/6348 support zone.

Daily Pivots: (S1) 1.3761; (P) 1.3781; (R1) 1.3815; More...

USD/CAD is staying in consolidation below 1.3837 and intraday bias remains neutral. Deep retreat could be seen, but downside should be contained above 1.3646 resistance turned support. On the upside, above 1.3837 will resume the rally from 1.3418 to 1.3946/76 key resistance zone.

In the bigger picture, sideway consolidation pattern from 1.3976 (2022 high) might still extend further. While another decline cannot be ruled out, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Daily Pivots: (S1) 194.34; (P) 194.97; (R1) 196.11; More...

Intraday bias in GBP/JPY stays neutral for the moment. On the upside, break of 195.95 will resume whole rise from 180.00 to 61.8% retracement of 208.09 to 180.00 at 197.35 next. Sustained break there will target 208.09 high. On the downside, below 192.87 minor support will turn bias back to the downside for 189.54 support. Further break there will target 183.70 support.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Daily Pivots: (S1) 162.12; (P) 162.44; (R1) 163.03; More....

Outlook in EUR/JPY is unchanged and intraday bias stays neutral. On the upside, firm break of 163.86 resistance will resume the rebound from 154.40 to 61.8% retracement of 175.41 to 154.40 at 167.38. On the downside, break of 161.00 minor support will turn bias back to the downside. Further break of 158.09 will target 154.40/155.14 support zone.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). The range of consolidation should have been set between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high. However, decisive break of 152.11 would argue that deeper correction is underway.

Daily Pivots: (S1) 0.8304; (P) 0.8339; (R1) 0.8359; More...

EUR/GBP's fall from 0.8433 extends lower today, but downside is still held above 0.8309 support. Intraday bias remains neutral first. On the downside, firm break of 0.8309 will resume larger down trend to 0.8201 key support next. However, decisive break of 38.2% retracement of 0.8624 to 0.8309 at 0.8429 will pave the way to 61.8% retracement at 0.8504 and possibly above.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. However, outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound.

Daily Pivots: (S1) 1.6113; (P) 1.6211; (R1) 1.6272; More...

Intraday bias in EUR/AUD is back on the downside with break of 1.6185. Deeper decline would be seen to retest 1.5996 key support level. On the upside, above 1.6351 will resume the rebound from 1.6002 to 38.2% of 1.7180 to 1.6002 at 1.6452.

In the bigger picture, as long as 1.5996 support holds, up trend from 1.4281 (2022 low) is still expected to resume at a later stage. However, decisive break of 1.5996 will argue that the medium term trend has reversed and turn outlook bearish.

Daily Pivots: (S1) 0.9353; (P) 0.9381; (R1) 0.9409; More....

EUR/CHF is still bounced in converging range and intraday bias remains neutral. On the upside, break of 0.9506 resistance should resume whole rebound from 0.9209 through 0.9579 resistance. On the downside, break of 0.9332 will resume the fall from 0.9579 towards 0.9209 low.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

China’s economy grew 4.6% yoy in Q3, slowing slightly from 4.7% in Q2 but in line with market expectations. This marks the slowest pace of growth since early 2023, as external pressures and a challenging global environment continue to weigh on the country's economic performance. On a quarterly basis, GDP expanded by 0.9%.

The National Bureau of Statistics noted that the economy remained "generally stable with steady progress," highlighting continued increase in production and demand, alongside stable employment and prices.

The NBS emphasized that the effects of the government's stimulus policies were beginning to show, with "major indicators displaying positive changes recently."

However, the bureau also cautioned that the external environment was becoming "increasingly complicated and severe," underscoring the need to further solidify the foundation for sustained recovery.

Key economic data released alongside the GDP report suggested signs of resilience in some sectors. Industrial production increased by 5.4% yoy in September, surpassing expectations of 4.6% yoy. Retail sales also exceeded forecasts, rising 3.2% yoy compared to the expected 2.4% yoy. Fixed asset investment saw a 3.4% year-to-date increase, slightly above 3.3% expected by analysts.

Japan's core CPI, which excludes fresh food, eased from 2.8% yoy to 2.4% yoy in September, slightly above expectations of 2.3% yoy. Despite the slowdown, core inflation has remained above BoJ's 2% target for well over two years.

The deceleration in price gains is largely attributed to government utility subsidies, which have helped lower household expenses. Headline CPI fell from 3.0% yoy to 2.5%, with gas prices subtracting 0.55 percentage points from the overall figure. This indicates that without government intervention, inflation would have remained higher.

Meanwhile, CPI measure that excludes both food and energy costs—often referred to as core-core CPI—increased from 2.0% yoy to 2.1% yoy, suggesting underlying inflation remains firm. However, service prices saw a slight decrease in momentum, slowing from 1.4% yoy to 1.3% yoy.

China has announced a range of stimulus measures recently. This pivot has been needed partly because of longstanding fragilities. It is hard to see a lasting upside for Australian iron ore exports from the moves.

In recent weeks, Chinese authorities have announced a range of stimulus measures, along with some vaguer statements of intent to stimulate. Westpac Economics’ Head of International Economics Elliot Clarke had the details in our October Market Outlook (PDF 2MB). Since then, the authorities have announced further housing-related measures that have mostly disappointed market observers.

The Chinese authorities have come to this point because domestic demand, especially consumer spending, has been soft and deflation has emerged. This illustrates a general principle about post-pandemic recoveries. The strength of recovery typically depended on the balance between the length and severity of the social distancing restrictions, and the extent of the policy support relative to the ‘income hole’ the restrictions created.

For example, restrictions in the United States were shorter-lived than in some peer economies, while the income support was extensive. Some workers were better off on the extended unemployment benefits than they were when they were working. Together with the stimulus from post-pandemic fiscal packages, it is no wonder that US domestic demand growth has outpaced that in other major advanced economies. In China, by contrast, restrictions (and the risk of snap lockdowns) persisted for much longer than elsewhere, but the income support to households and businesses was more limited. After an initial post-opening burst, consumer spending in China has been soft. In Australia and most European nations, these forces were more balanced; Australia inadvertently overfilled the ‘income hole’ but had restrictions in place for longer, while the Europeans tended to underfill the hole.

Another reason for the turn to deflation in China is that much of the stimulus and other policy measures have been about boosting supply capacity in priority areas, especially in high-tech manufacturing, rather than lifting demand.

More broadly, though, the pivot to stimulus has become necessary because of longer-standing fragilities in the institutional landscape there.

One of these fragilities is a vertical fiscal imbalance. Local and provincial governments are responsible for much of the public spending, especially for infrastructure. However, taxation powers are concentrated at the national level. The central government does redistribute some revenue back to the provinces, but not enough to cover the gap. Local governments therefore rely heavily on non-tax revenue sources such as land sales.

This reliance has made local governments sensitive to housing market cycles, which in turn collides with another fragility: construction activity has been contracting in China for several years. The beginnings of the decline were at least partly intentional. The government was concerned about the risks arising from high leverage and wanted to ensure that housing was for living in, not just speculation. They imposed a range of restrictions on the number of properties people could buy, and how much debt they could borrow to do so. Some of the stimulus measures announced in recent weeks are simple relaxations of those earlier restrictions.

Beyond these policy objectives, though, part of the issue is that housing construction needs to be a structurally smaller part of the Chinese economy than it was in recent decades. The population is shrinking, so there is no need to build homes to house additional people. The urbanisation phase is maturing, so there is less need to build homes in cities to house people who previously lived in rural areas.

Perhaps less well understood is that there is also less need to build new homes to replace older ones. When real incomes are growing at 10% per year, the home built ten years ago – when your real income was less than 40% of its current level – is no longer fitting to your aspirations. So there is a strong impetus to replace older buildings with newer, nicer ones. As living standards converge to those of richer peers and growth rates slow to 5%, or 4% or less, that economic rate of depreciation declines. There is less of an impetus to replace the old homes with new.

We have, of course, seen similar dynamics elsewhere. Economies in South-East Asia grew very quickly in the early-to-mid-1990s as they opened up and industrialised. Ireland and Spain also saw fast growth, and high levels of housing construction, after joining the euro area and converging to euro area living standards. Neither of these episodes ended well, though. Perhaps China can stick the landing on the transition to a smaller housing construction sector, because the authorities are trying to pre-empt the process. But the odds are against it.

That the Chinese authorities are indeed trying to induce shrinkage in the housing sector illustrates another key principle: China’s system is different, and the authorities can and are willing to use a broader range of interventions to achieve policy objectives. For example, while central banks in some major advanced economies resorted to purchasing assets during severe downturns in recent decades, a facility to lend to financial firms so they can buy equities would be deemed a bridge too far. This means that policy support in China can counter even clear fragilities and contradictions in the policy environment for longer than would be likely in the West. The Chinese government can and will ‘kick the can down the road’ for longer than markets can bet against their capacity to do so.

The ‘Iron Law’ for Iron Ore

The question for Australia is whether stimulus in China will be enough to kick the can down the road for the Chinese steel market, and so demand for iron ore, our largest export to China and in total. The question arises because this industry, too, is facing structural limits like those facing the construction industry, and for partly related reasons.

There is an empirical regularity – an ‘iron law’, almost – that, once countries hit a certain level of economic development, domestic demand for steel per capita tops out, unless you are Japan or South Korea and have a big export industry in shipbuilding. Beyond that GDP level, economies become more service-oriented and there is no additional per capita demand for steel. Past analysis by the RBA puts that level at about $US10,000 at 1990 prices; at current prices that would be around $US24,000. China has already reached that level, and with a shrinking population, Peak Steel per Capita also means Peak Steel in Total.

As Westpac Economics colleague Senior Economist Justin Smirk noted in our October Market Outlook, (PDF 2MB) Chinese steel production peaked already in 2020. There is no material upside to the size of this market in the long term. Since Australia remains a low-cost and reliable producer, we will continue to have a significant export market even if China switches to greater use of scrap steel in production in future. And in the short term, the consolidation of China’s steel industry favours the imported ore that Australia produces. But like the stimulus measures announced in recent weeks, these forces delay a near-inevitable slide in industries that have structural reasons to shrink. They do not create major avenues for additional growth for Australia.