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Australian Dollar Shrugs At China CPI, AUD/USD Pause Continues

Australian Dollar Shrugs At China CPI, AUD/USD Pause Continues

David Cottle, Analyst


Talking Points:

  • Chinese consumer-price and factory-gate inflation came in close to forecasts in December
  • There was little here for an Aussie Dollar market clearly focused elsewhere
  • AUD/USD’s daily-chart pull back remains in place

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The Australian Dollar didn’t move far Wednesday on a broadly as-expected set of inflation data out of China.

The official Consumer Price Index for December rose by 1.8% on the year, a shade under the 1.9% expected but above November’s 1.7%. Food prices slipped a little while the nonfood sector saw gains. Producer Prices rose by 4.9%, just above the 4.8% economists were looking for.

Overall there was nothing in these quite ‘Goldilocks’ data to suggest that China entered a new year facing either a marked increase in inflationary pressure or any sort of worrying contraction. China’s economy seems on course to hit its official growth target of “6.5% or better” for 2017. It’s important to bear in mind that, even if it does, growth will still be running at near-30-year lows. However, many economists talk of lower but better quality growth, offering perhaps a more sustainable prospect than did the double-digit gains of the breakneck years.

The Australian Dollar often reacts to Chinese data given its sometime status as liquid foreign exchange proxy for the Chinese didn’t obviously do so this time and, given the closeness of the data to forecasts, perhaps there was little reason why it should.

The currency has had a strong bull run against its US counterpart in recent weeks, albeit one largely fueled by general weakness for the greenback. However, AUD/USD’s strength seems to have petered out on the daily chart just short of the 0.79 level. Again this is more to do with general US Dollar sentiment than anything obviously amiss in Australia.

Indeed the latest domestic data, building approvals, shredded consensus. However, the Australian Dollar’s yield advantage has been eroded by Federal Reserve interest rate hikes and, with more of those expected well before Australian rates rise from their 1.50% record low, the Aussie could remain under broad pressure.

AUD/USD has also run out of steam just shy of the levels at which the Reserve Bank of Australia can sometimes start to express concern with its strength.

The current retracement of the rise from the lows of December 9 may initial support at 0.7786. That level represents the first Fibonacci support, with 0.7732 as the second, some way below the current market.

--- 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.