AUD Ticks Up On Solid China Data But Remains Clearly Pressured

Australian Dollar, Chinese Data, Talking Points:

• Chinese retail sales data beat forecasts slightly in August
• Industrial production was in-line while asset investment underperformed
• The Australian Dollar ticked up but has already had a fairly good week thanks to strong domestic numbers

Find out what the retail foreign exchange community makes of the Australian Dollar’s chances right now at the DailyFX Sentiment Page.

A slightly more positive tone to the Australian Dollar this week wasn’t notably improved by some broadly in-line Chinese economic data Friday, suggesting that market focus is probably elsewhere.

China’s official August industrial production expanded by 6.1%, as expected by the market and just 0.1 percentage points better than the previous month’s showing. Expansion for the year to date was 6.5%, again in-line.

Retail sales did better, expanding by 9% in August, beating the 8.8% rise expected. Fixed asset investment rose by just 5.3%, however, below the 5.6% expected and July’s 5.5% gain.

All up these data suggest that China is chugging along in solid but not stellar fashion, with definite impact from ongoing trade tensions with the US difficult to pin down. The Australian Dollar can often act as the foreign exchange markets’ liquid Chinese economy proxy, given its home countries huge raw material export links with China. It didn’t obviously do so in this case, with AUD/USD ticking up only very slightly after the data.

On its daily chart AUD/USD remains clearly within the long downtrend which has dominated trade for the vat majority of 2018 as interest rate differentials have swung inexorably in the US Dollar’s favor. This week has brought some respite thanks to strong Australian growth and employment numbers.

With no change to Australia’s record-low, 1.50% Official Cash Rate priced into futures markets for all of 2019, the Aussie is likely to remain under strategic pressure despite a strong domestic performance. Trade war worries also naturally hit growth such growth-linked currencies and the Australian Dollar is perhaps especially vulnerable given its export links to China and its political and security ties to Washington.

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--- Written by David Cottle, DailyFX Research

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