Huang Yiping, an advisor to the People’s Bank of China, indicated that the Chinese Consumer Price Index (CPI) is expected to decline moderately in February. He added that external factors will exert pressure on domestic demand this year.

Adjustments in the property market are causing a contraction in demand. Tariff increases from the Trump administration could sharply reduce China’s exports to the US.

In related economic activities, the PBOC has conducted a one-year Medium-term Lending Facility worth CNY300 billion at an interest rate of 2.0%. Meanwhile, the Australian Dollar remains stable amid heightened risk aversion.

Huang expects the downward movement in the CPI to be moderate. That suggests inflationary pressures are weak, which typically signals that demand is softening. Weak demand in China, the world’s second-largest economy, tends to have repercussions beyond its borders. Given that much of the country’s economy depends on domestic spending and exports, traders should be aware that low price growth could mean slower economic expansion. Inflation isn’t falling dramatically, but it isn’t rising at a pace that would suggest strong activity either.

He also points to external elements putting strain on domestic demand throughout the year. That is worth paying attention to because if demand remains weak over an extended period, policymakers may feel compelled to intervene. Traders and investors should therefore be prepared for decisions from the central bank designed to counteract these effects.

The troubles in the property sector are a known issue. Housing demand isn’t what it was, and that filters through to other industries. When fewer people buy homes, they don’t take out large loans. And when construction slows, fewer raw materials are needed. That reduces economic activity in those related sectors. This is not a short-term adjustment.

Then there’s the matter of the tariffs. The prospect of higher duties on exports to the US is no small issue. If enforced, they would make Chinese goods more expensive in one of its largest markets. This would inevitably squeeze manufacturers. Fewer exports mean lower production, which leads to reduced earnings and possibly job losses. That would weaken consumer spending further back home.

On the central bank side, the People’s Bank of China has deployed a one-year Medium-term Lending Facility, funnelling liquidity into the financial system. The size is considerable, and the interest rate attached to it is low. This points to authorities ensuring access to credit remains inexpensive. When central banks take these steps, they are usually trying to boost lending and economic activity without resorting to more aggressive moves. This should be seen as part of the broader effort to maintain stability in an environment where the risks, as outlined earlier, remain present.

Meanwhile, the Australian Dollar is not showing much movement despite the widespread cautious sentiment in global markets. The stability suggests that while traders are cautious, they are not yet reacting in a way that would send the currency lower. It is often sensitive to shifts in market confidence, particularly when there are risks related to China. If uncertainty builds over the coming weeks, the lack of volatility in the currency may not last.