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Why the Aussie need not fret the China slowdown

Carla Gottgens | Bloomberg | Getty Images

The Australian dollar has long been driven by the currents of China's economy, but analysts say it's becoming increasingly resilient to negative news flow from the mainland.

The Aussie touched a high of over 91 cents on Thursday and closed the day 0.5 percent higher against the greenback, despite weaker-than-expected Chinese data. Blow-out Australian labor market numbers which tripled expectations also aided the move higher.

"What you're seeing out of Australia is you are not seeing the economy fall off the cliff despite the fact that China is slowing down," Boris Schlossberg, managing director of BK Asset Management, told CNBC Asia's Squawk Box on Friday.

China reported its January/February combined industrial production, retail sales and fixed assets investment data on Thursday, all of which missed expectations, indicating some slowing in the Chinese economy. The weak data added to a string of other negative news flow out of the country this week, including the country's first corporate bond default in recent history and a rout in both copper and iron prices to multi-year lows.

China is Australia's largest trading partner; a slowdown in China's economy is seen as a headwind for Australia.

(Read more: Is China's slowdown actually good for the world?)

But Schlossberg said the fundamentals driving Australia's economy are changing.

"They [Australia] are able to basically recalibrate their economy away from just a pure mining and export driven economy to more of retail and services based economy," he said.

Australia's mining boom has helped strong growth levels in the country in recent decades, although in recent years analysts have said the boom is now over.

Schlossberg pointed out that as long as policy makers are able to engineer this transition from resource driven growth to more domestic growth successfully, the country's central bank, which cut rates eight times in the past two years in a bid to stimulate the economy, should have no impetus to cut rates further keeping investors' appetite for the Aussie strong.

"That's why you're seeing the bid on the Australian dollar, it's a relief rally there and it remains relatively well bid despite all the weakness out of China," he added.

Devesh Divya, currency strategist at Standard Chartered bank, expects the Australian dollar to remain resilient this year as well, but said its strength would be primarily driven by domestic factors.

"I don't think this resilience is due to a breakdown between the correlation between the Aussie and the Chinese economy," he said.

(Read more: Fresh worries over China prompt slew of downgrades)

What's next for the euro?

Divya said Standard Chartered raised their recommended weighting on the Australian dollar from underweight to neutral based on the Reserve Bank of Australia's removal of its easing bias, suggesting there are no more rate cuts on the cards.

"Gross domestic product (GDP) data, trade, retail and employment have all been better which is going to fuel a mild upturn in the Aussie," he said, adding that he sees the Aussie trading between 88 cents and 90 cents to the U.S. dollar in the short term and finishing the year at 90 cents.

"Our view on the Aussie reflects our view on China, which we think will grow lower than expected this year at 7.4 percent, but won't see a huge slowdown, easing pressure on the Aussie," he added.

(Read more: Is talk of an Australia comeback premature?)

However, not all analysts are convinced that the Australian's dollar's recent resilience will last.

Investment bank Goldman Sachs lowered its forecast for the Aussie this week, saying they saw it declining to 80 cents to the U.S. dollar over the next 12 months.

The bank said it was not convinced by the the recent uptick in domestic data out of Australia and said the re-emergence of signs of weakness in the economy would likely prompt the central bank to cut rates again, providing a catalyst for further weakness in the currency.

The Aussie has rallied roughly 1.5 percent against the greenback this year, after falling 14 percent against the U.S. dollar in 2013.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie