Chinese Data Steals the Show Again
The Australian dollar was bailed out once again overnight, this time by Chinese inflation and industrial production data, which showed output picking up considerably, much to the delight of global investors.
Chinese data once again helped to reverse the fortunes of the Australian dollar (AUD) after several reports came in better than expected, indicating that production in the world's second-largest economy is rebounding.
AUDUSD came under pressure early in Asian trade when the release of the Reserve Bank of Australia (RBA) minutes cast a dour tone on growth down under. The RBA lowered its growth projections for 2013 to 2.25% from 2.5% and noted that economic growth is expected to remain below trend through mid-2014. More importantly it once again reaffirmed its point that the Aussie was still too high and that the decline in the currency would help the adjustment process.
AUDUSD dropped to a session low of .9084, but quickly rebounded after Chinese data again came to the rescue. China released a slew of reports today, including PPI, CPI, industrial production, and retail sales. Both PPI and CPI printed cooler than expected with PPI coming in a -2.7% vs. -2.1% while CPI rose only 2.7% vs. 2.8% forecast. The lack of pricing pressures allows for further stimulus from Chinese monetary and fiscal authorities, helping to boost investor confidence for growth going forward.
More importantly, however, China's industrial production rose a very healthy 9.7%, which was well above the consensus forecast for 8.9%, demonstrating a clear pick-up in manufacturing demand. Taken together with the improvement in the official PMI readings, the Chinese industrial production numbers suggest that some of the inventory cycle may have been worked off and that production is once again beginning to expand.
The only downside data point from China was the small miss in retail sales, which came in at 13.2% vs. 13.5% expected. However, analysts expect that number to rebound over the next few months as the government announces a set of policies to help support information consumption, which should spur more demand for Internet-related ware.
Overall, the market took the results from China to be net positive and helped rally the AUDUSD to fresh weekly highs above the .9150 level. The pair is now fully 300 points from its lows as it continues to rebound after months of relentless selling.
Although this appears to be nothing more than a relief rally within an overall downtrend, AUDUSD could try to climb towards .9300 over the next few days before hitting any meaningful resistance.
GBP/USD Rally Likely to Rest
In the UK, the data continued to show improvement as UK total trade balance came in at GBP -1.55 billion, its smallest deficit since January. GBPUSD rallied mildly in the aftermath of the news, but ultimately failed to clear the 1.5550 level.
After several days of very strong rallies, the pair may now settle down a bit as it digests its gains, and the run towards 1.5600 is likely to stall for the time being.
USD/CAD in Focus Today
In North America today, the economic calendar is essentially barren with only wholesale inventories on the docket, and the focus will turn to Canada, which releases its employment report at 8:30 am ET (12:30 GMT).
The Canadian dollar (CAD) has benefitted from the recent recovery in the commodity dollars, and USDCAD now stands near the 1.0300 level. Today's employment report was expected to show 6.1K new jobs versus a decline of -0.4K the month prior. After the data posted a shocking disappointment, however, printing at -39.4K, USDCAD was instead rocketing to the upside and trading above 1.033 at the time of writing.
By Boris Schlossberg of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.