AUD/USD – Sideways on Mixed Chinese Data

This morning was a strong Chinese data day, with a series of data coming in together at 10:00am Beijing. The biggest number that everybody was looking out for was Q2 GDP, which came in at 7.5% for Q2 Y/Y in line with expectations. However, other measures of GDP came in lower than expected – Real GTP Q/Q grew only 1.7% versus the expected 1.8%, while Real GDP YTD came in at 7.6% vs 7.7% expected. Besides the weaker than expected GDP, other measurements of the Chinese economy were disappointing as well. Industrial Production (Jun) Y/Y came in at 8.9% vs an expected 9.3%. Fixed assets Inv is also lower, growing at 20.1% vs 20.2% expected. The only saving grace from today’s slew of data was Retail Sales, which grew 13.3% Y/Y, much higher than the 12.9% expected. However, this is not exactly a good thing considering that retail CPI has been rising higher than expected, while Produce Price Index has been lagging behind. With PBOC wanting to instil structural reforms in Chinese economy which is leading to slower growth rates, having a stronger inflation rate which is not supported by producers gains increases their problems that they need to solve. Hence all in all, the data isn’t encouraging, with “mixed” being a very generous description that we can give.

Hourly Chart

That did not stop AUD/USD from rallying after the non-surprising dip following the news release. Price found some support above 0.908 following the news and traded higher, pushing towards the support turned resistance around 0.911. Since then, price managed to touch 0.908 once more during early European hours, and bounced back up with similar ease within the 0.908 – 0.911 band again. Looking at the broader short-term pressure, AUD/USD is trading lower and the entire 0.908 – 0.911 range can be interpreted as a resistance band. Together with the Stochastic bearish signal, the likelihood of 0.911 holding increases, which opens up the door for a retest of 0.900. That being said, current stoch readings are flattening, and there is also a possibility of readings moving back up again – which would be in line with a break of 0.911 resistance. Considering that readings were forming troughs around current levels before (see 9th – 11 July), it may be too early to determine that price will be moving lower especially when 0.908 remains intact.

Daily Chart

Daily Chart shows price trading within the descending channel. With Stochastic readings still firmly pointing lower, the move from Channel Top to Channel Bottom may not be over, which would imply that current rebound from 0.9 may simply be a short correction which may not see prices reaching Channel Top again. Nonetheless, the truth in this assertion remains to be seen, and we should preferably see price trading back below at the very least below current candle’s low before confirming that the current bearish cycle is resumed.

Fundamentally, with China looking weaker, we can rule out the Chinese economy being the savior for current AUD/USD weakness. This leaves AUD to fend for its own, and looking at last week’s AUD/USD weakness, where price barely rallied despite extreme USD weakness due to Ben Bernanke’s dovish speech, it is clear that AUD is on a long bearish road. Credit Suisse’s Overnight Index Swap is pricing in a 60% chance that RBA will cut rate by 25 bps in August, and that will also continue to weigh heavily on AUD/USD moving forward.

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