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Stronger Australian Dollar Goes No Higher On Chinese Data Dump

Stronger Australian Dollar Goes No Higher On Chinese Data Dump

David Cottle, Analyst

Talking Points:

  • Chinese industrial production and investment data came in as expected for November
  • Retail sales missed forecasts by only just
  • The Australian Dollar had already logged solid gains and didn’t have the legs for more

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An already elevated Australian Dollar didn’t make much further headway Thursday on the release of an avalanche of heavyweight Chinese economic data, most of which came in as forecast.

November’s industrial production rose 6.1% on the year, in line with expectations, with fixed-asset investment rising 7.2%, also as slated. Retail sales missed their market-set target, but only by a whisker, rising by 10.2% on the year when economists had hopped for 10.3%. November’s gain was still better than October’s 10% rise.

All up the data speak to a Chinese economy performing at least reasonably well, with no obvious threat visible to Beijing’s official full-year growth target of ‘6.5% or better.’ It should be noted however that should growth come in near that target it will still represent a retreat to multi-decade lows.

The Australian Dollar can act as the markets’ favorite liquid China bet thanks to Australia’s famed raw-material export links with the world’s second-largest economy.

There was little obvious sign of this link Thursday however, AUD/USD already having made gains during the Asian session. Broad US Dollar weakness following the US Federal Reserve’s monetary policy decision gave it an early leg-up. The Fed raised rates and stuck with its prognosis of three more likely increases in 2018. This however was not enough to support the greenback as it appeared there had been many investors hoping for more hawkish rhetoric and, perhaps, the prospect of another rate rise added to the three.

Then the Aussie got a lift on its own account as domestic employment data smashed forecasts to atoms. 61,000 new jobs were created in November, massively ahead of the 19,000 expected. This was a two-year peak for job creation, gift-wrapped with a six-year high for the overall participation rate.

On its broader, daily chart AUD/USD has in the last few days broken up through the pervasive downtrend channel which has bounded market action since the year’s highs were hit back in September. It remains to be seen whether this ‘disappointment’ at what remains a pretty hawkish Federal Reserve will endure. But there have been notable improvements in the Australian economic numbers of which Thursday’s employment explosion is only the latest example. Consumer confidence also picked up, according to a survey released Wednesday.

If these trends endure it’s not unthinkable that the current, rather distant futures-market pricing of an Australian rate hike might yet come in a little closer. Currently no move is fully priced until early in 2019.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.