The Chinese economy indicated that economic growth in China to cool during the first quarter of 2011 after the nation’s manufacturing growth retreated during the month of December, as Chinese government has tightened monetary policy in April for four times since October 2010.
The Chinese economy issued its PMI manufacturing index reading for the month of May, which retreated to 51.1, compared with a previous reading of 51.8 in April, the actual reading of PMI manufacturing indicates a recovery of the industrial sector in China gets some of decline.
Meanwhile, the inflation rates still above the Chinese government target for the fourth consecutive month during April after China’s consumer price index (CPI) accelerated near the fastest pace in more than two year, which supported the monetary policy makers to hike the rates by 25 basis points to 6.31%.
Moreover, amid the government’s efforts to contain inflation rates, the economy has left the Yuan to continue its appreciation against the US dollar, while higher currency gains could limit inflation rates by reducing the cost of the nation’s imports.
High inflation rates is considered to be a threat to the economical growth experienced by China where officials are trying to halt this increasing pace of inflation by imposing tightening policies and increasing interest rates 4 times since October, which will adversely affect the production and consumption level that creating a negative impact on the GDP.
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China is seeking to control consumer prices that rose 5.4 percent in March, the most in 32 months, without stifling the growth that’s helping to power the world economy.
We can see that the gross domestic product in China will grow at slow pace in the first three months, affected the tightening in benchmark interest rates.
On the other hand, the economy has closed factories to meet energy-efficiency target in one of the government’s efforts to contain inflation appreciation. Further, industrial output growth weakened last month and the worst power shortage in seven years is hurting production at some factories as provinces start curtailing electricity supplies.
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The Australian Dollar (AUD) the risk sensitive currency was under pressure with the negative Euro news spilling over to the stock markets and the Aussie. The AUD/USD fell back towards 1.0600 and could fall further as the correction continues. Overall the AUD/USD traded with a low of 1.0605 and a high of 1.0710 before closing the day at 1.0660 in the New York session.
Oil & Gold (XAU) Gold did well with the sovereign risk increasing in Europe adding to safe haven demand for the alternative currency. Overall trading with a low of USD$1486 and high of USD $1516 before ending the New York session at USD$1513 an ounce. Oil volatility continued with a sharp drop to 96.50 reversed and the market ended above $100 a barrel. WTI Oil Closed +$1.20 at $100.10 a barrel.
