Aussie Hits Weekly Highs, Will Loonie Follow?

Posted on

Market Drivers for August 9, 2013
China data deluge sparks life into Aussie
UK Trade balance much better as cable retests 5500
Nikkei 0.07% Europe 0.31%
Oil $103/bbl
Gold $1308/oz.

Europe and Asia:
NZD NZ Card Spending
JPY Tertiary Industry Index -0.3% vs. -0.2%
JPY BOJ Monthly Economic Report for August
JPY Consumer Confidence Index
GBP Total Trade Balance -8.1B vs. -8.4B

North America:
USD Wholesale Inventories 10:00
CAD Housing Starts 8:15
CAD Unemployment Rate 8:30
CAD Net Change in Employment 8:30

Chinese data once again helped to reverse the fortunes of the Aussie dollar after several reports came in better than expected indicating that production in the world’s second largest economy is rebounding.

Earlier in Asian trade AUD/USD came under pressure when the release of the RBA minutes cast a dour tone on growth Down Under. The RBA lowered its growth projections for 2013 to 2.25% from 2.5% initially and noted that economic growth is expected to remain below trend through mid 2014. More importantly it once again reaffirmed its point that the Aussie was still too high and that the decline in the currency would help in adjustment process.

AUD/USD dropped to a session low of 9084 but quickly rebounded after Chinese data came to the rescue. China release a slew of reports today including PPI, CPI, Industrial Production and Retail Sales. Both PPI and CPI printed cooler than expected with PPI coming in a -2.7% vs. -2.1% while CPI rose only 2.7% vs. 2.8% eyed. The lack of pricing pressures allows for further stimulus from Chinese monetary and fiscal authorities, helping to boost investor confidence about growth going forward.

More importantly however, China’s Industrial Production rose a very healthy 9.7% well above forecast of 8.9% demonstrating a clear pick up in manufacturing demand. Taken together with the improvement in the official PMI readings, the Chinese IP numbers suggest that some of the inventory cycle may have been worked off and that production is once again beginning to expand.

The only dour data point from China was the small miss in Retail Sales which came in at 13.2% vs. 13.5% expected. However, analysts expect that number to rebound over the next few months as the government announces a set of policies to help support information consumption whih should spur more demand for internet related ware.

Overall, the market took the results out of China to be net positive and helped rally Aussie to fresh weekly highs as the pair cleared the 9150 level. The Aussie is now fully 300 points off its lows as it continues to rebound after months of relentless selling.. Although this appears to be nothing more than a relief rally within an overall downtrend, the unit could try to climb towards the 9300 level over the next few days before hitting any meaningful resistance.

In UK the data continued to show improvement as UK Total Trade Balance came in at -1.55B GBP – its smallest deficit since January. Cable rallied mildly in the aftermath of the news but failed to clear the 1.5550 level. After several days of very strong rallies, the pair may now settle down a bit as it digests its gains and the run towards the 1.5600 figure is likely to stall for the time being.

In North America today the US calendar is essentially barren with only wholesale inventories on the docket, and the focus will turn to Canada which releases its employment report at 12:30 GMT. The loonie has benefitted from the recent recovery in comm dollars and the pair now stands near the 1.0300 level, Today’s report is expected to produce 6.1K jobs versus a decline of -0.4K the month prior. However if the data beats, with new jobs hitting the double digits barrier then USD/CAD is likely to slice through the 1.0250 support that has been capping loonie ralies for the past month.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *