Market Drivers for October 18, 2013
Chinese GDP in line helps to lift Aussie
Goldman sees RBA tightening from November 2014
Nikkei -.17% Europe 0.11%
Oil $100/bbl
Gold $1320/oz.

Europe and Asia:
CNY GDP 7.8% as expected

North America:
CAD CPI 8:30

After a massive move yesterday, currencies settled into a quiet night of trade on the last session of the week as traders continued to digest the implications of the US budget deal. The eco calendar is essentially barren in both Europe and North America today with the only data of note coming from China.

Chinese economic data printed largely in line with GDP coming in at 7.8% as forecast and Industrial Production increasing at 10.2% rate versus 10.1% eyed. One sour note was the weaker than expected Retail Sales report that showed a gain of 13.3% versus 13.6% projected. The news was slightly disappointing on that front as the country’s efforts to move to a more consumption based model have yet to materialize.

Many analysts have noted that investment continues to comprise more than 50% of Chinese GDP and that the latest figures simply showed the same old government stimulus forces at work. Nevertheless the headline GDP number was relatively robust given the global growth conditions and with US budget issues resolved for the time being, the hope amongst investors is that demand in Q4 will pick up accordingly.

The Aussie initially sold off slightly on the Chinese numbers, but eventually recovered to trade back to day’s highs as currency traders saw few red flags in the data. The Aussie was also boosted by a report from Goldman Sachs that it expects the RBA to return to a tightening bias in November of 2014. While that may be a long way off, the Australian policymakers remained relatively nonchalant regarding the single currency’s recent strength.

RBA Governor Glenn Stevens said that he “personally” thought that a lower AUDUSD would be helpful to rebalance the economy, but the emphasis on personal rather official policy indicates that at least for now the RBA is willing to tolerate the pair above the 9500 exchange rate.

Meanwhile the dollar continued to weaken against its counterparts with USD/JPY hitting session lows by mid-morning London trade while EUR/USD inched toward the key 1.3700 level. With euro so close to yearly highs the temptations to run stops at that barrier is extremely strong and the pair will likely try to push through that figure as we approach North American trade.

As we noted yesterday, the one key takeaway from the budget battle of the past several weeks is that the Fed is likely to remain accomodative until the end of the year at least and given that scenario the dollar will remain under pressure for the time being.

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