FX market outlookPosted on Thursday, October 19 2017 at 8:58 am GMT+0000
Kiwi sinks as Peters supports Labour Party; aussie slips as China’s growth softens
A day after China twice-in-a-decade Communist Party Congress commenced, statistics out of China showed that the economy continued to grow above the government’s annual target, giving more confidence on President XiJinping’s leadership. However, the expansion was slightly softer relative to the previous quarter, with the Australian dollar falling slightly in the wake of the data. In New Zealand, the Labour Party looks set to govern the country pushed the kiwi to a near five-month low.
According to the National Bureau of Statistics of China, the second-largest economy grew in line with expectations by 6.8% y/y in the third quarter, at a slightly slower pace than in the previous quarter as the government put extra efforts to cool the property market and limit debt-related risks. However, markets remained positive on the country’s economic outlook with PBOC Governor Zhou Xiaochuan saying that GDP growth could reach 7.0% in the second semester of 2017.
Other data showed that Chinese industrial production climbed by 0.6 percentage points to 6.6% y/y in September, surpassing the forecast of 6.2%, whereas investments on equipment fell short of expectations, decreasing by 0.3 percentage points to 7.5% y/y, and missing projections of a rise by 7.7%.
The Chinese yuan retreated against the dollar, with dollar/yuan rising to a ten-day high of 6.6417 before it fell back to 6.6234.
In Europe, the focus is on Catalonia, with markets eagerly anticipating whether the Catalan leader, Charles Puigdemont, would step back from his symbolic independence declaration – Madrid set him a deadline for today at0800GMT. The Spanish Prime Minister, Mariano Rajoy, warned Puigdemont on Wednesday to “act sensibly” in order to avoid the implementation of the direct rule which would give the right to the Spanish government to suspend the region’s autonomy.
The euro, though, continued its uptrend during the Asian session, approaching a one-week high of $1.1821 after Reuters polls indicated that the ECB will announce on October 26 its decision to start trimming its asset-buying program in January. Recall that the plan was for the monthly purchases to drop from the current 60 billion euros to 40 billion. However, there is still doubt whether the plan would extend for six or nine months.
The pound was mainly flat around $1.3195 ahead of retail sales figures during the European session. The UK Prime Minister is also expected to attend the EU summit in Brussels later today (which concludes on Friday), where European leaders will discuss the progress in Brexit negotiations.
The dollar index was ranging around 93.32 after posting moderate gains earlier on the back of higher Treasury yields.
Dollar/yen was moving sideways at 112.95.
In New Zealand the leader of the kingmaker First Party, Winston Peters, announced his decision to support the opposition Labour Party to form a government, declaring Jacinda Ardem the next Prime Minister – she will hold the role for the next three years. The kiwi tumbled, reaching a near five-month low of $0.7037, losing 1.41% on the day.
On the other hand, the aussie recorded gains during the session in the wake of better-than-expected employment data that were partially lost after China’s GDP growth appeared softer. Note that China is the largest export partner of Australia. Employment in Australia increased by 19,800 people, exceeding the forecast of 15,000 but remaining below the previous mark of 53,000 (downwardly revised from 54,200). The unemployment rate declined to 5.5%, a level seen before in March 2013, while analysts expected the figure to remain at August’s rate of 5.6%.
Turning to commodities, oil prices moved lower on Thursday, while gold stood taller. WTI crude was down by 0.35% at $51.86 per barrel and Brent fell by 0.33% to $57.97. Gold was up by 0.13% at $1,2820 per ounce.