Chinese Data Mixed but Comm Dollars Stay Bid

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Market Drivers October 19, 2016
Chinese GDP in line but IP misses
UK Labor data steady
Nikkei 0.21% Dax -0.25%
Oil $50/bbl
Gold $1263/oz.

Europe and Asia:
CNY GDP 6.7% vs. 6.7%
CNY IP 6.1% vs. 6.4%
GBP UK Average Earning 2.3% vs. 2.3%
GBO UK Claimant Count 0.7K vs. 3.4K

North America:
USD Building Permits 8:30
CAD BOC Monetary Policy 10:00

The dollar was weaker today in Asian and early European trade with USD/JPY slipping more than 60 points off session highs as US yields dipped below the 1.75% mark on slightly disappointing Chinese data.

In China the GDP numbers printed in line at 6.7% but the Industrial Production results were noticeably weaker coming in at 6.1% versus 6.4% eyed. The news proved to be a disappointment to comm dollar bulls who had bid both Aussie and kiwi ahead of the event. NZDUSD was especially strong rising to .7235, but it fell back towards .7200 in the aftermath of the release.

The Chinese numbers suggest that while economy continues to expand the pace is clearly slowing, most clearly so in the manufacturing sector which was the core engine of growth for many years. The transition away from export led manufacturing growth towards a more balanced economy based on services and consumer demand continues to evolve but in the meantime it causing a slowdown that could leave the world’s second biggest economy vulnerable in the near term.

Still with oil well bid at the $51/bbl mark, the commodity dollars continue to perform well as both risk appetite and yield hunting drives flows into the complex. Tonight the Australian employment data will be released and if the numbers show another double digit gain the Aussie could test key resistance at the .7700 level.

Meanwhile today, the major event in North America will be the Bank of Canada Monetary Policy release and as our colleague Kathy Lien noted, “The BoC is widely to leave interest rates unchanged. When they last met in September, their concerns about lower inflation and growth sent the Canadian dollar tumbling. This month, there’s been more improvement than deterioration in Canada’s economy, as shown in the table below. Housing market activity has been particularly robust and manufacturing activity rebounded. Oil prices are also up more than 17% and job growth rose sharply in the month of September, giving the central bank reasons to be optimistic. While there’s no need for a near term rate cut, with retail sales continuing to fall and consumer price growth slowing, the BoC has plenty of reasons to remain dovish.”

Still, with oil prices now firmly above the $50/bbl, if Governor Poloz sounds even mildly optimistic USD/CAD could test the 1.3000 level as the day proceeds.

Boris Schlossberg
Managing Director

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