Australian Dollar Steady As Chinese Inflation Meets Forecasts

Talking Points

• Chinese inflation data for June came in just about as markets had expected
• Consumer prices rose 1.5% Y/Y, with non-food prices leading
• The Aussie Dollar market clearly had other things on its collective mind

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There was little for Australian Dollar investors to get their teeth into Monday with the release of broadly as-expected inflation numbers out of China.

Consumer prices rose an annualized 1.5% in June, official figures showed. That was exactly the same as May’s print and only just below the forecast 1.6% rise. Food prices slipped back, apparently while non-food prices made modest gains. Producer prices meanwhile rose 5.5%, just as expected. Both indexes fell by 0.2% on the month.

The Australian Dollar can at times act as the financial markets’ favorite liquid China proxy thanks to China’s vast raw-material export links to the world’s second-largest economy. However in recent weeks the Aussie has been more vulnerable to disappointing data out of China than likely to rise on stronger numbers. It didn’t do much at all on the inflation release, with AUD/USD barely moved and stick in the 0.76 area.

The Reserve Bank of Australia surprised some investors last week by refusing to increase the volume of hawkish rhetoric, as some other developed market central banks have done. The record-low, 1.5% Official Cash Rate prevailing in Australia is thought likely to stay put at least until the closing months of 2018. Then it could start to rise, according to the futures market curve.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX