AUD momentum stalls as China activity data misses the mark
Daily Currency Update
The AUD retreated through trade on Monday amid weaker China activity data. In what was otherwise a relatively quiet start to the week, China activity data dominated market attention and unsurprisingly missed the mark. GDP data showed momentum through Q2 slowed considerably, printing just 0.8% quarter on quarter, well down on the 2.2% growth enjoyed through Q1. In comparison, the annualised pace of growth touched just 6.3%, almost 1% short of consensus estimates at 7.1%.With growth slowing and deflationary signs emerging, the yuan tracked lower on the day, spilling over into AUD. Having opened near US$0.6840 the AUD fell through US$0.68, marking intraday lows at US$0.6790, before finding support. With most other major counterparts trading within a narrow range against the USD, the AUD is lower across the board sliding back toward 0.52 pence and 0.6050 euro.
With the AUD on the back foot, our attentions turn to the RBA minutes of the July meeting while US retails and Canadian inflation headline the overnight docket. While the RBA minutes are unlikely to offer any new guidance, we are keenly attuned to the language and tone policymakers adopted in guiding expectations for possible future rate hikes.
Any suggestion the RBA will extend delays in additional hikes could weigh on the AUD and force a consolidated break back below US$0.68.
Key Movers
Price action across major currencies was largely muted through trade on Monday with the GBP, euro and yen little changed. The NY Empire State survey was the only headline data available overnight and it printed better than expected with leading price indicators showing inflation fell through June. US treasury yields retreated following the data, but a price action across rates and equities was well within recent ranges.The day's big mover was the Chinese yuan. China’s underwhelming activity data weighed on the yuan, allowing the USD to move off 7.15 and back toward 7.20, marking intraday highs just above 7.19. The release of Q2 activity readings amplified fears the Chinese economic engine is losing momentum as Q2 GDP, fixed asset investment and consumer retail sales all fell short of consensus expectations.
With markets crowing for broader stimulus measures, our attentions are affixed to an expected meeting of the Politburo later this month as a potential launching pad to announce new stimulus measures. While the Chinese economy continues to lambast and policy direction/stimulus is left wanting, the AUD and NZD will likely face ongoing headwinds and the USD/CNH will remain a popular carry trade play.
Our attentions today turn to Canadian inflation and US retail sales data for direction.
Expected Ranges
- AUD/USD: 0.6750 - 0.6880 ▼
- AUD/EUR: 0.6020 - 0.6120 ▼
- GBP/AUD: 1.9020 - 1.9420 ▲
- AUD/NZD: 1.0720 - 1.0850 ▲
- AUD/CAD: 0.8950 - 0.9050 ▼