Chinese economic data proved better than expectations providing mild boost to Australian dollar allowing it to recover above the 1.0400 level in Asian session after yesterday’s sharp sell off in North American trade. Chinese Retail Sales and Industrial Production both ptiontrinted better than forecast with the latter rising to 9.6% from 9.5% eyed and the former increasing by 14.5% versus 14.4% consensus calls. Fixed Asset Investment also rose to 20.7% from 20.6% originally projected. Inflation remained tame at 1.7% versus 1.9% anticipated.

Overall, the news confirmed that China has so far engineer a soft landing in its economic slowdown as growth slowed from the torrid pace of 10% plus annual rates of the past decade to a more subdued but still impressive 7.0% plus rate. China’s statistics chief estimated that growth in China in 2012 would come in at 7.5% with CPI running at 4%. The steady growth rates in China’s GDP along with tempered inflation rates allow the authorities to be more flexible with monetary policy into the new year, but the economy still faces considerable risks into 2013, most of which may be out of Chinese leader’s control.

It is clear that despite their best efforts to reconfigure China’s growth away from production to consumption, exports and investment still control a disproportionate part of the country’s economy. To that end the marked slowdown in the Eurozone which has now spread to the core economies of Germany and France could severely hamper China’s export growth in the coming year.

That’s why despite the better that expected results, the reaction in Aussie was only mildly positive and the pair struggled to hold onto its gains as it drifted back towards the 1.0400 figure as European trading commenced. With risk aversion sentiment still dominant in the FX market and the latest French Industrial Production data markedly worse than expected any rally in risk remained very hesitant for the time being.