Chinese data disappoints…again
Another poor reading from Chinese economic growth set-off a wave of selling across Asia yesterday.
Most notably, full-year economic growth for China was reported at 5.2% versus forecasts for 5.3%. Chinese retail sales also disappointed.
The Australian dollar fell for the third-straight day – down 0.5% and matching the lowest level since 22 November. The Australian jobs release – due at 11.30am AEDT – will be critical today.
The Chinese yuan was also lower with the USD/CNH up 0.1% and trading to the highest level since 17 November.
The NZD/USD fell 0.5% while the USD/SGD gained 0.2%.
Overnight, the losses were compounded by stronger US data, with December retail sales and industrial production both better than expected. Retail sales were reported at 0.6% for the month (forecast at 0.4%) while industrial production was up 0.1% (versus forecast for a 0.1% drop).
The US data extended a reversal higher in bond yields as markets doubt whether the Federal Reserve will cut rates in March. The probability for a March cut has fallen from 80% at the start of the week to 60% overnight (source: Refinitiv). The USD gained.
ECB minutes due
The European Central Bank minutes are due tonight in a period in which the EUR has been relatively well supported.
As was generally anticipated, the ECB held interest rates in December. However, the ECB also opted to announce the timing for the reduction of PEPP portfolio redemption reinvestments, which surprised market participants.
Apart from that, given that the ECB staff surprised markets by raising the projection for core HICP inflation in 2025 and delaying the time by which headline HICP inflation falls below 2% from Q4 2025 to Q1 2025, it will be crucial to ascertain how strongly the Governing Council believes in these projections.
The euro still has some upside risk if Eurozone GDP surprises to the upside, especially when contrasted to extremely low expectations, or if the ECB lowers rates significantly later or slower than the Fed, despite the market pricing both moves roughly the same.
GBP boosted by inflation surprise
In the UK, the RICS house price survey is due. The headline pricing balance improved from -61 to -43, a six-month high, in last month’s RICS survey, suggesting a somewhat better outlook. Expectations for prices also decreased, from -38 to -25.
In terms of activity, freshly negotiated transactions also increased, while new buyer inquiries increased from -25 to -14, marking the best print in a year and a half. Indeed, for the first time since the spring of 2022, the balance of sales estimates went positive. The housing market’s deterioration may be contained by declining mortgage rates and decreased inflation, which raise real disposable earnings.
Any positivity in this reading might be beneficial for the GBP – especially after Wednesday night’s stronger than expected inflation reading boosted the currency.
USD/CNY hits top of the trading range
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 15 – 20 January
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
