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The Australian Dollar fulfilled its traditional status as a proxy for investor exposure to China by falling on the day it was revealed the Chinese economy shrank in the second quarter.

Chinese GDP fell 2.6% quarter-on-quarter in the second quarter, below the consensus expectation for -1.5.

China's annual GDP rose just 0.4% in the quarter, well below the 1.0% expected.

"The impact of COVID-19 restrictions in major population centres such as Shanghai and Beijing were evident in Q2 national accounts data. China’s economy grew marginally in year-on-year terms, up by 0.4%, but contracted significantly in quarterly terms – down by 2.6%. This result was considerably weaker than expectations," says Gerard Burg, Senior Economist at NAB.

The Australian Dollar was softer against all its G10 peers on the day:

Above: AUD lost ground to all rivals in the G10 on July 15.

"AUD has remained under pressure this week, and that mostly relates to the currency’s much greater reliance on external factors, which arguably look grimmer by the day. China (Australia’s number one export market) may face new lockdowns, and the latest data showed a larger-than-expected slowdown," says Francesco Pesole, FX Strategist at ING Bank.

The Pound to Australian Dollar is currently at 1.7558, bank accounts are offering Aussie Dollar payments at around 1.7066 and independent providers at 1.7505.

The Australian to U.S. Dollar exchange rate is currently at 0.6735, down 1.80% this week.

China is the prime destination for Australian exports and the health of the economy therefore matters for Australia's economy and Dollar.

"The weakness of the Chinese economy has helped stymie emerging market currencies and elevated asset volatility is hurting high-beta currencies including AUD," says analyst Kit Juckes at Société Générale.

Looking ahead, economists remain concerned further Covid-19 outbreaks remain a downside risk to the outlook should the country continue to pursue its zero-Covid policy, which looks to be the case.

However, there are also some suggestions that authorities might be quietly shifting their approach, and any further evidence of this could be supportive of the Aussie.

"AUD is a liquid way to play China reopening in the macro space," says Viraj Patel, Macro Strategist at Vanda Research.

A look at the details of the data does however reveal industrial production has rebounded strongly since the worst of China's lockdown restrictions started easing and this could continue.

But it is domestic consumption that appears to be a concern.

"Consumers are likely to remain cautious in the near term, given the lack of fiscal support for households during the pandemic and the risk of further damage to household balance sheets from any further lockdowns," says Burg.

Economists at Commerzbank say they expect growth to pick up through the second half of the year.

"Credit conditions have been eased again, and credit growth has subsequently accelerated again. At the same time, attempts to curb investment in the real estate sector, pursued primarily by regional governments, have apparently been put on hold for the time being. This could spur growth in the second half of the year via a recovery in the real estate sector," says Weidensteiner.

Such a result could offer support to the Aussie through the remaining months of the year.