Australian Dollar Shrugs At Chinese Inflation Gains

2017-02-14 02:09:00

David Cottle, Analyst

Talking Points

Chinese inflation data came in strongly for January
Both consumer and producer prices beat both forecasts and December’s level
But Chinese New Year timing may have offered a one-off boost

An already stronger Australian Dollar Tuesday couldn’t get any higher on Tuesday following the release of robust official inflation numbers out of China.

The Consumer Price Index (CPI) rose to 2.5% in January, compared with the same period last year. This was a tick above the 2.5% expected and a lot higher than December’s 2.1% gain. On the month, prices rose by a 1%.

Factory gate prices also rose sharply. The Producer Price Index (PPI) was up 6.9% on year, above the 6.5% gain expected and December’s 5.5% rise. The annualized gain was the fifth one in succession. While at face value these numbers look very strong, China’s statistics agency cautioned that consumer prices were probably boosted by one-off factors related to the long Lunar New Year holiday. Businesses tend to increase output sharply before the long holiday shutdown which can last for two weeks.

Nevertheless, here is yet another sign that China’s economy is revving at some speed. The inflation data come after last week’s trade data which smashed all forecasts for both import and export levels.

The Australian Dollar is often the foreign exchange markets’ favorite liquid China proxy. That’s thanks to its homeland’s huge commodity-export links with the world’s second-largest economy. True to form it made a little ground after the Chinese data. But it was already up sharply on the day thanks to a bullish snapshot of Australian business sentiment from the National Australia Bank. AUD/USD ticked up to 0.76730, but didn’t stay there long and retreated shortly afterward.

However, it had already risen from 0.76458 thanks to NAB.

No more to give: AUD/USD