Sharp drop in China new loans keeps risk at bay

Moves in the major FX pairs were relatively stable through US trade after having been quite choppy in Asia. 

Uncertainty continues to dominate global markets and this has resulted in investors exercising caution. The disappointing China trade balance numbers set the tone for risk to start the week and this has had an adverse impact on risk assets.

The sharp drop in iron ore was the highlight in yesterday’s trade as it weighed on many commodity and emerging market currencies. There were more developments overnight with China releasing new loans data. The amount of new loans essentially halved from the previous month to 645 billion. The market was expecting around 730 billion. We still have China industrial production and fixed asset investment on Thursday to look out for this week. Amidst all the China noise, the question is can the country still print its 7.5% growth target? With inflation remaining benign, the country has plenty of room to open the taps in Q2.

AUD loses ground on NAB data

Surprisingly the AUD has held up fairly well through all this volatility and continues to hold above 0.90 against the greenback. AUD/USD is sidelined at 0.902 and is showing signs of moving away from being a commodity currency and being more domestically-focussed. While it is still a long way from this, traditionally a sharp drop in China and iron ore would certainly see it savaged. However, going by what we’ve seen this week it has held its own.

In fact, the pair only lost ground this morning when NAB business confidence and conditions data was released. The data showed a sharp drop from the previous month and this could be a reflection of the RBA’s move to a more neutral bias. The potential for spending cuts on the fiscal side of things is also perhaps a reason for the drop. AUD/USD looks like it might be heading for a retest of 0.90 in the near term. This is where fair value has been perceived by the market recently, so perhaps we might see some buying come in at that level. 

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