NEW YORK (TheStreet) -- Chinese growth has helped put a bottom under the falling Australian dollar/Japanese yen currency pair.
On Monday it was reported that Chinese gross domestic product annual growth of 7.7% beat the forecast of 7.6%. The strong number out of China, a close trading partner with Australia, boosted sentiment for the Aussie dollar.
The Aussie dollar had come under pressure in recent weeks as the country reported a decrease of 22,600 jobs in December when a decrease of only 7,500 jobs was expected. Reserve Bank of Australia officials have stated that the domestic currency was overvalued, and the weak employment number reiterated that belief.
The Australian economy derives a majority of its export revenue from China. Weak Chinese manufacturing and services numbers earlier in the year brought the Aussie dollar lower.
The strong Chinese growth number improves the outlook for Australia. If the Chinese economy can continue to grow at a 7% rate or better over the next year, then demand for Australian exports should remain high. That would be bullish for Australian interest rates and the Aussie dollar.
An issue that could arise is increased Chinese money-market rates. Throughout 2013 spiking short-term rates meant it was more expensive for companies to borrow funds. The People's Bank of China intends to tighten policy over the next decade to slow investment and deter asset speculation, but short-term spikes in the money-market rate are bearish for investor confidence, and tend to cause global equity markets to sell off.
Ultimately, the Aussie dollar/yen currency pair relies on a strong global economy to move the price higher. The yen has been a drag on the pair recently because of waning confidence in the U.S. and European equity markets. Investors used the anxiety felt during equity selloffs to bid the yen, a safe-haven asset, higher versus most currency partners.
If economic data in the U.S. and China continue to improve, then the Aussie dollar could show considerable strength over the yen. The move higher would be even more magnified now considering the recent selloff in the pair.
data by YCharts
At the time of publication, the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.