We were provided a fairly negative lead from Wall Street and price action as detailed yesterday is starting to look a little more vulnerable. Despite this lead, the two clear highlights in the Asian session have been reports that China has lowered its growth targets to ‘around 7%’, and narrative from Reserve Bank of Australia member Philip Lowe.
Reports are that China have lowered its GDP (to ‘around 7%), retail sales (13%), fixed asset investment (15% from 17.5%), foreign trade (6%), inflation (3%) and money supply targets (12%), although these figures have largely been expected from economists for a while. They should not surprise in any way. The fact mainland markets are lower is probably more a by-product of the heavy amount of retail flow involved in the markets, who perhaps get caught up in semantics more than professionals. The lack of reaction in the AUD/USD or Aussie resource stocks seem the better guide at the lack of surprise on the announcements stemming from the National People’s Congress (NPC).
The current consensus is that we see China growing at 7.2% in Q1, 7.1% in Q2 and 7.0% in Q3, although the risks to Q3 growth are firmly to the downside and 6.5% could be a reality. Expect another 50 basis point cut to banks reserve ratio requirements this quarter.
Australian retail sales grew as expected at 0.4%, however Mr Lowe’s comments were a greater driver pushing the local unit up 30 pips to $0.7843, although sellers have been coming back into the pair. Mr Lowe went out of his way to highlight the central bank are not targeting a weaker currency policy, which should fulfil Australia’s G20 commitments. However, his comments that the
AUD is closer to ‘fair value’ has given the shorts some reason to cover positions. His comments that further easing may still be appropriate are a simple reiteration of the official RBA statement and shouldn’t shock but I stand by my call from yesterday to play a range of $0.7910 to $0.7723.
On the docket tonight traders will be closely watching the European Central Bank meeting (see my comments here in forex), while European and US factory orders will get a lesser focus.