Australian Dollar, AUD/USD, China, US Dollar, USD/CNY – Talking Points
- China’s industrial production and retail sales missed forecasts
- The PBOC has a number of policy options to offset Covid-19 restrictions
- If the yuan is allowed to weaken further, what will this mean for AUD/USD?
The Australian dollar fell further after a series of data on Chinese economic activity crossed the wires earlier in the day, missing expectations.
Industrial production came in at -2.9% year-on-year at end-April vs. 0.5% expected and a March print of 5.0%. Retail sales came out at -11.1%, instead of -6.6% expected and -3.5% previously.
Today’s activity data builds on slower loan growth data released on Friday. This has led some market participants to seek a modest reduction in the 1-year medium-term lending facility rate today.
The People’s Bank of China (PBOC) disappointed them, leaving the rate at 2.85%. Over the weekend, the PBOC had eased interest rates for first-time home buyers by 20 basis points to 4.4%.
With strict Covid-19-related lockdowns remaining in place for the world’s second-largest economy, China’s growth prospects remain a concern for global trade.
The Australian dollar is vulnerable to these swings in perception of China’s outlook. The evolution of risk sentiment has seen a few days of volatility for the Aussie and today’s numbers look likely to add to the uncertain outlook.
Before the data, markets were in risk mode stocks started the week on stronger footing.
USD/CNY continues to rise and is near the upper end of the trading band as it flirts with 6.8000. The weakening yuan will have ramifications for currencies across the region, further undermining AUD/USD.
AUD/USD 1 MINUTE CHART
Chart vscreated in TradingView
AUD/USD TECHNICAL ANALYSIS
AUD/USD continued to rally on Monday after last week’s selloff. A series of death crossare emerged over several weeks and reveal bearish momentum that had been unfolding for some time.
Resistance nearby could be at 0.6976 January low then higher at 0.6992 November 2020 low. Another resistance area could be seen between 0.7030 and 0.7050, just above the 10-day level. simple moving average (SMA).
On the downside, support could be at last week’s low at 0.6829.
Chart created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter