The appeal of the Australian dollar remained steadfast overnight despite the advent of Euro based selling. The local unit was rejuvenated after yesterday’s employment data, while a further moderation in Chinese inflation provided a solid foundation for commodity based currencies - in-turn adding weight to the possibility of near-term easing prospects from the Peoples Bank of China. The local unit resumed an upside trajectory against the Euro with the EURAUD pair falling just shy of euro-era lows to 1.1611. We’ve seen a similar theme of Euro weakness across major counterparts with the currency hitting a 12 year low against the Swedish crown. In what may be seen as mix of profit taking and technical based selling, the EURUSD pair fell below the 1.23 region for the first time this week, with mild downside breaching various points of support, with the pair hitting lows of $US1.2266.
China’s latest consumer price data showed inflation moderated to a yearly pace of 1.8 percent in July down from a previous 2.2 percent, representing a 30-month low. While consumer inflation enters the perceived sweet-spot worthy of further policy easing, the PBoC’s (Peoples Bank of China) choice of ammunition may need to be a little more complex with the latest producer price index continuing a rapid descent. Yesterday’s data showed producer prices fell at yearly pace of 2.9 percent in July, in excess of the -2.5 percent anticipated. Meanwhile, weaker than expected growth from industrial production and retail sales adds credence to expectations the PBoC will soon put their foot on the accelerator.
Although this has acted as a broad foundation for commodity currencies, the kiwi failed to enjoy the same level of support as its commodity cousin the A$, with yesterdays New Zealand jobless rate unexpectedly edging higher to 6.8 percent.
Today will see the focus shift back to the RBA with the quarterly Statement on Monetary Policy on the docket. Market participants will be watching closely for the release to elaborate on Tuesday’s policy statement from Governor Stevens, which highlighted the disparity between fundamental drivers and the Australian dollar’s unwavering appeal, despite a marked decline in terms of trade and weaker global growth expectations. Also in the frame today is the release of Chinese trade data which is expected to see the surplus widen to $US35 billion in July from a previous $31.7 billion. While export growth is expected to moderate in July, the value of imports will be of particular interest given concerns of a further decline in domestic demand.