Forex – Aussie dips after Moody’s downgrades China’s sovereign rating

The Aussie dipped on Wednesday after Moody’s Investors Service on Wednesday downgraded China’s credit rating to A1 from Aa3, changing its outlook to stable from negative, citing expectations that China’s financial strength will erode somewhat over the coming years.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.03% to 97.25.

AUD/USD fell 0.24% to 0.7462 with China a top trading partner, while CNY/USD slipped to 6.8901, 0.1% below late U.S. levels. USD/JPY changed hands at 111.79, up 0.01%.

“Moody’s expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage,” Moody’s said in a statement. “The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole.”

It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.

Moody’s estimated that while the government budget deficit in 2016 was “moderate” at around 3% of gross domestic product (GDP), it expected the government’s debt burden would rise toward 40 percent of GDP by 2018 and 45% by the end of the decade.

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