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Yesterday we had seen limited reaction to strong NAB business confidence and conditions data. A bounce in Westpac consumer sentiment to 3.8%, essentially pre-crisis levels, was a bit of a surprise but the market remains unconvinced given the continued weakness in the labour market. Additionally the wage price index released this morning which also showed further signs of weakness with the reading remaining at record lows. The wage cost index fell to 0.6% quarter on quarter but was steady at 2.6% year on year. This essentially implies downside pressure on inflation and is also consistent with the weakness we have been seeing in the labour market.
Out of China we have seen a sharp drop in new loans, aggregate financing and money supply figures. While the data has been on balance disappointing, AUD/USD has managed to hold fairly steady around the 0.928 level.
Traders still looking to sell
Heading in to the rest of China data which is scheduled for this afternoon, there are two potential scenarios that could play out here. A bounce in AUD/USD to the 0.933 region could be used as a potential selling opportunity. Alternatively a momentum play on a break below 0.924 which is the lowest level the pair has traded this month.
Data out of China includes industrial production, retail sales and fixed asset investment. Expectations are for continued steady growth in industrial production, fixed asset investment and retail sales. Any major variations could also sway the AUD.