AUD rallies ahead of China data

Risk assets remained bid as investors continued to react to positive data out of China.

AUD/USD is holding its ground above 0.92 as it becomes clearer that the global economy is in a better place. There is another round of data due out of Asia today. Locally we had NAB business confidence, which showed the strongest reading since May 2011 and reinforced the idea that the local market has turned a corner in the short term.

This has also resulted in the AUD maintaining its bid tone as AUD/USD rises to 0.925. We continue to feel the pair has breached key resistance levels and the current momentum is likely to take it back above 0.93 and into the 0.9320 resistance zone. Any strong readings will be used as an excuse to bid the AUD higher in the near term. There is more China data out today, with fixed asset investment, industrial production and retail sales to look out for. A 9.9% rise in industrial production is expected for August and no doubt expectations will be high ahead of all this data. Jobs numbers on Thursday will be the key event for the AUD with analysts expecting to see another poor reading with the unemployment rate ticking up to 5.8%, another four year high.

USD/JPY stuttered at ¥100 yet again after having gotten a lift when Tokyo was awarded the 2020 Olympics on Sunday. This prompted talk of more stimulus flowing into the Japanese economy and in turn weaken the yen. Mr Abe is likely to make it his mandate to lift infrastructure in time for the Olympics. Japan is Australia’s second biggest trading partner and we are in a good position to benefit from Japan’s spending as well.

This is why many analysts are now looking at AUD/JPY to outperform the majors. AUD/JPY is just at 92 and it will be interesting to see if it can finally break above that level for the first time since July. The BoJ minutes released today were a non-event as expected. Focus in the short term is likely to remain on the proposed sales tax hike. USD/JPY is currently sidelined at around 99.62 and could push higher if tapering talk intensifies.

EUR/USD was one of the best performing FX pairs and continued its recovery after a sharp reversal from lows in the 1.31 region. It ran up to a high of 1.328 in the absence of any key data from the region. Later today we only have French industrial production due out, but we feel the overall risk tone will set the pace for the single currency.

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