Chinese and Aussie Data to Dominate Market Sentiment

21.10.14

Chinese and Aussie Data to Dominate Market Sentiment

Forex price action could see more volatility in today’s trading sessions, as there are more events lined up compared to the start of the week. For today’s Asian session, the Reserve Bank of Australia will be printing the minutes of its latest monetary policy meeting and possibly reveal why they are looking to keep monetary policy unchanged for much longer.

Concerns about Chinese economic performance could also be addressed in the RBA minutes, as the world’s second largest economy and Australia’s number one trade partner recently saw a bout of weak inflation reports. This has been spurred by overcapacity and weaker global demand, which could then take its toll on commodity imports and employment. A dovish RBA transcript could force the Australian dollar to retreat against its forex counterparts and drag the other commodity currencies, such as the New Zealand dollar and the Canadian dollar, along.

A bigger mover for the entire forex market might be the release of the Chinese GDP reading for Q3, which is slated to be weaker compared to the previous 7.5% reading. If so, the higher-yielding currencies could once again give in to weaker risk appetite, as traders move their holdings to safer assets. On the other hand, strong Chinese data could reassure investors that the global economy would stay afloat, keeping risk aversion at bay.

Fixed industrial production, fixed asset investment, and retail sales reports are also due from China but these are likely to take a backseat to the headline GDP release. Still, if most of the figures come in the red, risk appetite could take a huge hit and lead to rallies by the lower-yielding US dollar and Japanese yen.

Apart from Chinese data, New Zealand credit card spending and Japanese all industries activity index are also due. Credit card spending is slated to pick up in New Zealand, which would be a leading indicator of strong retail sales. Meanwhile, the Japanese all industries activity index could print another weak reading and remind traders that the possibility of further BOJ easing is still on the table.

The event risks are still relatively light in the London session though, as most of the forex price moves could take their cue from the outcome of the Asian session reports. Swiss trade balance is up for release but this barely has a lasting effect on franc price movements while the UK public sector net borrowing report is also slated to have a minimal effect on pound movements.

RBA Deputy Governor Lowe is set to give a testimony before the end of the London trading session and possibly reaffirm what the RBA minutes contain. Cautious remarks could keep a lid on Aussie rallies while upbeat comments could keep the currency afloat.

Data is still light in the US session, with only the existing home sales report due. This could show another pickup in sales, which might remind traders that the US is one of the better performing major economies. However, a huge disappointment might undermine dollar strength and indicate why the Fed is having second thoughts about tightening monetary policy next year.

Fading geopolitical risks could allow riskier currencies to rebound, especially if data releases from the larger economies indicate continuous recovery. Bear in mind, however, that the IMF recently downgraded their global growth forecasts as they expect weak demand and higher debt levels to weigh on performance.