Commodity Currencies Tumble as China GDP Misses

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Market Drivers for April 15, 2013
Weak Chinese GDP data sends risk FX lower, as USDJPY breaks 98.00
Commodity selloff weighs on AUDUSD as it tumbles through 1.0450
Europe -0.92% Nikkei -1.55%
Oil $89.00/bbl
Gold $1435/oz.

Europe and Asia:
AUD Home Loans 2.0% vs. 1.6%
JPY BOJ Governor Kuroda Speech
JPY Industrial Production 0.6% vs. -0.1%
GBP Rightmove House Prices 2.1% vs, 1.7%
EUR Trade Balance

North America:
USD Net Long-term TIC Flows 7:00
CAD Existing Home Sales 7:00

Risk currencies came under heavy assault on the first trading day of the week after China’s Q1 GDP data badly missed expectations raising fears of a global economic slowdown. The latest data from China disappointed the markets with GDP printing at only 7.70% versus 8.0% expected.

The fall in GDP was attributed primarily to lower consumption in the wake of government crackdown on luxury spending as well as slowdown in property investment and FAI growth as credit conditions tightened. The news sent USD/JPY tumbling through the 98.00 figure as the pair tripped stops all the way to 97.55.

The sharp decline in yen crosses also dragged EUR/USD and GBP/USD lower, but the biggest high beta victim of the night was Aussie which broke the key 1.0450 support and remained moribund near the 1.0400 figure for most of morning European dealing.

There was some speculation that the weaker than expected Chinese economic data may have understated the pace of activity, so that the new Chinese regime could set a lower a benchmark for growth for the rest of the year. However, even if the data was guided lower, it nevertheless confirms that global growth in Q1 is slowing markedly. With both China and US missing their expectations, the estimates for global growth may now be revised downward.

Whether this is merely a pause or the start of a more malignant problem for the global economy remains to be seen, but it is not surprising that Aussie, which is the key barometer of risk appetite, has reacted so negatively to the news. In fact the whole commodity currency block which only last week was setting fresh monthly highs on the back of renewed demand for the carry trade, has now seen a very sharp correction today as gold, silver and oil continue to tumble. If risk aversion flows continue to accelerate in North American trade AUD/USD could break the 1.0400 level and test the key 1.0350 support.

Despite the correction in high beta name, the EUR/USD has actually managed to show some relative strength. It was lower but held above the 1.3050 support level boosted by strong EZ Trade data which printed at 12.0B versus 9.9B eyed. Despite the generally horrid economic results from the region the EUR/USD has held up well over the past several weeks, but the recovery rally has stalled at the 1.3150 level.

Still with no meaningful action from the G-20 expected this week, it is difficult to imagine any pick in EU economic activity and perhaps the best that can be hoped for is a stabilization of conditions as growth turns less negative. However, given the parabolic rises in the commdollars last week, even such modest expectations could provide EUR/USD with an edge this week and the pair could show some relative strength on that front as the week proceeds.

Boris Schlossberg
Managing Director

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