The Australian Dollar briefly bumped up a touch after Chinese CPI came in at 0.1% year-over-year to the end of April against the 0.3% forecast and March’s print of 0.7%. PPI came in at -3.6%, instead of the -3.3% expected and -2.5% previously.
The data has led to speculation that the People’s Bank of China might bring forward plans to stimulate the economy. The post-pandemic re-opening has not delivered the boost to China’s economic activity that the government and the market had been looking for.
Last week saw a few mid-tier financial firms lower deposit rates and that has led to speculation that lending rates might also be moving south. It’s possible that the PBOC might be looking for a clearly marked Fed pause before cutting rates to ignite the economy
Chinese government bond (CGB) yields have been slipping across the curve. The 10-year bond dipped under 2.7% today for the first time since November last year.
China is a destination for many Australian exports and any stimulus measures that boost the Middle Kingdom’s economy could pave the way for a further lift to Australia’s trade balance, which is already running at record levels
Demand for industrial metals such as iron ore and copper may increase if China’s economy returns to robust growth levels.
Market sentiment had already been assisted by hopes of a less hawkish Federal Reserve after US inflation gauges also eased slightly overnight.
Headline CPI was 4.9% year-on-year to the end of April instead of the 5.0% estimated, and it appears to have emboldened the interest rate market to reinforce its view that the Fed will be cutting its target rate later this year.
Treasury yields also fell across the curve with the largest moves seen in the 1 to 5-year part of the curve. The US Dollar lost ground in the aftermath and is struggling to recover so far today.
If the central banks of the world’s 2 largest economies take a dovish tilt, the outlook for global growth might improve to some degree. The Aussie Dollar has historically been sensitive to sways in such notions.
AUD/USD has been in a 0.6565 – 0.6818 range for 11 weeks and a definitive break to the topside could see bullish momentum evolve.
AUD/USD, GOLD, COPPER, IRON ORE, DXY (USD) INDEX