Commdollars Lead FX on Chinese Data Beat

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Market Drivers July 12, 2019
Chinese data beats
Comms rally
Nikkei 0.20% Dax 0.41%
UST 10Y 2.12%
Oil $60/bbl
Gold $1414/oz.

Europe and Asia:
CNY 9.8% vs. 8.5%
CNY IP 6.3% 5.2%
CNY GDP 6.2% vs. 6.2%

North America:
USD Empire 8:30

Chinese data beat the forecast providing a lift to commodity dollars in the only price action at the start of the week.

With no major economic releases out of the G-7 today and all the central bank speak behind the market, FX trade was generally quiet as Chinese eco data took center stage, showing that both consumer demand and Industrial Production were firmer than expected.

Chinese Retail Sales rose by 9.8% versus 8.5% forecast while Industrial Production expanded at 6.3% versus 5.2% eyed. Both data points suggest that despite the trade war tensions with US, Chinese economy continues to perform far better than expected and should provide support to global growth going forward.

The news buoyed both Aussie and kiwi with the later powering through the .6700 figure as it hovered near the recent highs of .6726. A break higher would open a run towards .6750 and even .6800 as interest rate expectations in New Zealand firm up given the evidence of solid demand from China. Tonight’s New Zealand CPI data could push it over the top if the inflation numbers rebound adding to speculation that RBNZ will stay pat for the time being.

Elsewhere, the majors were very quiet in typical summer doldrums trading with USDJPY trying to recover the 108.00 figure in quiet trade. Over the past few days, there has developed a massive disconnect between USDJPY price action and the jump in US rates which are now 20bps off their most recent swing lows. The disparity in price action can last much longer as the yield differentials are likely to exert upward pressure on the pair. If 10Y yields push towards 2.20% USDJPY should begin to follow suit, but the disconnect in prices should be a concern to bulls and if the pair can’t hold the 107.50 support another test of the recent spike lows of 106,50 could be in view.

Boris Schlossberg
Managing Director

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