Risk appetite dealt another blow by weak Chinese data

September 8, 2015

Another bout of downbeat Chinese economic numbers soured the mood in the Asia. China’s trade data for August cast doubt about the overall health of economy, with both imports and exports falling for the second month in a row. The market’s immediate response was to flee risk-currencies for the safe haven of the yen and even the euro, with USDJPY breaking 119.00 and EURUSD breaching 1.1200.

This time around exports fell 5.5% y/y, which is slightly better than the prior month’s 8.3% y/y fall and an expected 6.6% y/y drop. Imports completely missed the mark, falling a massive 13.8% y/y (expected -7.9% y/y). Overall, the trade figures paint a fairly bleak picture of global demand and domestic activity, which limits the main conduits for growth in the world’s second largest economy.

The market was already very nervous about the prospects for Chinese growth, and today’s data is going may turn a few more bulls into bears, at least in the short-term. However, China is expecting some short-term pain as it puts its economy in a better position to rely on its own population and it still has a lot of policy ammunition to fight the slowdown.

On Thursday, China releases its latest inflation numbers which will provide a valuable look into the health of the domestic economy. Inflation is expected to rebound in August with the CPI anticipated to rise 1.9% y/y, after steadily increasing for most of this year on widespread monetary policy easing from China’s central bank.

AUDJPY

Prior to the release of China’s soft trade numbers, the Australia dollar rallied on the back of a large uptick in NAB’s Australian Business Conditions Index, which jumped to 11 in August from 6 in the prior month, despite a drop in its sister Business Confidence Index to 1 from 4 over the same period. However, the aussie gave back some of these gains following the release of China’s soft trade numbers. Meanwhile, the yen rocketed higher on the back of those same numbers, pushing AUDJPY to an important support zone around 82.00.

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