Talking Points:
- Chinese industrial production underwhelmed in July
- Retail sales did too, but not quite so badly
- The Australian Dollar wobbled, but didn’t fall far. Indeed it looks composed at altitude
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The Australian Dollar was steady Monday despite some heavyweight Chinese economic data which missed market forecasts.
July’s industrial production rose 6.4% according to official figures. That was well below both the 7.1% gain expected and June’s 7.6% rise. Retail sales also missed, but only just. They rose by an annualized 10.4%, when investors had hoped to see a 10.8% rise after June’s 11%. It’s tempting to suggest that those forecast misses will come to matter less than the clear deceleration seen for both series.
The Australian Dollar often finds itself in the position of investors’ favourite liquid China proxy thanks to its home nation’s vast commodity-export links with the world’s second-largest economy. It didn’t very obviously fulfil this role in the wake of the data, although it did slip back very modestly in the direction of 0.7900.
Obviously there are other factors in play, notably a modest revival of risk appetite as last week’s bellicose snarling between Washington DC and Pyonyang appears to have calmed somewhat. That said potential upside may be limited right now as the Australian central bank has been at pains to point out that it wouldn’t care to see its currency get a lot higher even if it doesn’t think current market action is extreme.
The Australian Dollar has spent the last couple of weeks in modest retreat but still looks pretty comfortable around the two-year highs reached back then. It remains clearly below a downtrend line drawn from those peaks, but support in the 0.7850 area seems to be holding. A challenge to that trendline looks like quite a big ask for now but, by the same token, the sellers do not appear to be out in any kind of force which must be encouraging for the bulls at this altitude.
Wednesday will bring the next significant “local” event risk for the currency with the release of official employment statistics. The last set of these data was a real blockbuster in terms of full-time job creation. A rerun or anything like it looks all-but certain to be bullish for the Aussie.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
