Chinese Inflation Data Having A Global Rippling Effect
Chinese data will weigh on trading throughout the day; this morning inflation figures from China missed their mark. Consumer prices in China increased less than expected during May in a further sign that activity remains subdued in the world’s second biggest economy. The Consumer Price Index rose 1.2 per cent in May, compared to a year earlier. This was well below expectations of a 1.4 per cent rise.
The Producer Price Index, a gauge of wholesale prices, declined for the 39th month in succession. The PPI fell by 4.6 per cent in May, the same decline as in April. China has cut interest rates three times over the last seven months and reduced the amount of capital banks must keep in reserve, as it seeks to boost growth. It has also rolled out target stimulus measures, including increasing the pace of railway investment and construction of social housing. But the government has avoided rolling out a broad-based stimulus program such as the ECB and the Fed did when needed. This data will have a rippling effect hitting commodity currencies and the commodities market directly.
The US dollar continued to decline as it is rumored that President Obama at the G7 summit said that the US dollar was too high, although the Administration is saying that this is a misquote. The Aussie dollar was able to stay flat this morning at 0.7703 with the weaker dollar and stronger internal indicators offset the declining in Chinese prices. The US dollar dipped 20 points in the Asian session to trade at 95.02. The kiwi was not so luck, with traders unsure of what to expect from the Reserve Bank, and a lack of local data today the kiwi declined 17 points to trade at 0.7128.
The euro continued to gain as the dollar weakened to trade at 1.1322 having one of the best days this year. Greece continues to weigh on traders but with things put off until the end of the month, the euro was able to rebound against the greenback. Over the weekend, EU Commission President Juncker warned Greece that time was running out to conclude a debt deal to avert a damaging Greek default.
The Japanese yen has been trading with strength after GDP and current account data on Monday beat expectations. The USDJPY declined from a 13 year high to trade at 1.2445 this morning when just yesterday morning the pair was well above the 125 level. The EURJPY added 34 points as the euro continued its rebound and is trading at 140.90 its highest level in the last few months. The Japanese economy performed much faster than estimated in the first quarter, bolstering views Abenomics and the Bank of Japan’s massive stimulus plan are taking effect. In a revision, the Cabinet Office said gross domestic product grew at a real annualized rate of 3.9 percent in the January-March quarter, bounding over the 2.4 percent rate listed in its preliminary report released last month.
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