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Aussie Slammed by PBoC Comments - is China in Trouble?

Aussie Slammed by PBoC Comments - is China in Trouble?

2012-03-30 14:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

- Consumer Spending in U.S. Climbs 0.8%, More than Forecast – Bloomberg

- Lacker Sees 2% to 3% Economic Growth in U.S. this Year – Bloomberg

- Japan Goes Off Script at Nuclear Summit to Slam North Korea – Reuters

- Bundesbank Rejects Weak Euro-zone Bonds – WSJ

- Euro-zone Raises Crisis Firewall Ceiling to €700 Billion – WSJ

European Session Summary

It’s hard to say if trade ahead of the U.S. cash open was positive or negative for risk-trends; the Dow Jones FXCM Dollar Index (Ticker: U.S. Dollar) hadn’t ticked above its daily open, but the commodity currency block was rather weak. In fact, but for the New Zealand Dollar – the best performing major on the day – the Australian and Canadian Dollars were notably weaker. What gives?

Early in the Asian session on Friday, the People’s Bank of China released its 2011 China financial market development report, essentially the central bank’s assessment of macroeconomic trends. The PBoC noted that Chinese financial markets grew at a healthy pace in 2011, and the PBoC would continue its proactive fiscal policy and prudent monetary policy during 2012. Accordingly, the PBoC noted that China’s financial markets may continue to grow as develop moderately throughout 2012.

It appears the “prudent monetary policy” comment really irked market participants, as that suggests that the PBoC may be shying away from another rate cut to help the Chinese economy. Data in recent weeks has been less than spectacular, and as a result, the Australian Dollar has been under an immense amount of pressure. In fact, the Aussie has been the worst performing major currency this month against the U.S. Dollar, down 3.44 percent at the time this report was written.

Pre-North American Session Data

Ahead of the U.S. cash equity open, there were a few releases that could influence price action for the remainder of the day. First, at 12:30 GMT, Canadian growth figures for January were due, but the prints were uninspiring. In line with expectations, the Canadian economy grew at 0.1 percent month-over-month and 1.7 percent year-over-year. However, these prints represented a slowdown, as the Canadian economy grew by 0.5 percent and 1.9 percent, m/m and y/y respectively, in December. As expected, the Canadian Dollar traded lower against the U.S. Dollar after the release.

Also released at 12:30 GMT were consumer spending data from the United States. While personal spending was up 0.8 percent in February (versus 0.6 percent expected from 0.4 percent in January), personal income was lower, only up 0.2 percent (versus 0.4 percent expected from 0.2 percent in January). Additionally, the PCE core reading, the gauge of inflation the Federal Reserve uses to determine price pressures in the U.S. economy was on hold at 1.9 percent. This represents the tepid picture I have discussed before: consumers are spending more with less income. The U.S. economy won’t sustain its rate of growth if this continues.

NZDUSD 5-min Chart: March 30, 2012

Aussie_Slammed_by_PBoC_Comments_-_is_China_in_Trouble_body_Picture_10.png, Aussie Slammed by PBoC Comments - is China in Trouble?

Charts Created using Marketscope – Prepared by Christopher Vecchio

Overall, the New Zealand Dollar was the top performing currency in the overnight, gaining 0.58 percent against the U.S. Dollar. The European currencies continued to outperform the commodity currencies overall, however, with the British Pound, the Euro, and the Swiss Franc all outpacing the Australian and Canadian Dollars. The Franc was the best performer of the bunch, gaining 0.42 percent against the U.S. Dollar. The Canadian Dollar, following the mediocre GDP print, was the worst performer on the day, depreciating by 0.12 percent, at the time this report was written.

24-Hour Price Action

Aussie_Slammed_by_PBoC_Comments_-_is_China_in_Trouble_body_Picture_7.png, Aussie Slammed by PBoC Comments - is China in Trouble?Aussie_Slammed_by_PBoC_Comments_-_is_China_in_Trouble_body_Picture_1.png, Aussie Slammed by PBoC Comments - is China in Trouble?

Key Levels: 14:20 GMT

Aussie_Slammed_by_PBoC_Comments_-_is_China_in_Trouble_body_Picture_4.png, Aussie Slammed by PBoC Comments - is China in Trouble?

Thus far, on Friday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 9927.47 at the time this report was written, after opening at 9951.96. The index has traded only lower, with the high at 9951.96 and the low at 9908.94.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com

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