FX market outlook

FX market outlook

Chinese growth reassures markets; yen gains while dollar is mixed.

Chinese GDP met expectations and helped to support risk sentiment while the US dollar was mixed versus its peers in today’s Asian trading.

The news that China’s GDP growth was in line with expectations was the main news development of the session.  Chinese GDP for the third quarter grew by 6.7% compared to the respective year ago period.  Industrial output for September missed estimates however, while retail sales were slightly higher-than-anticipated.  Overall the data showed that China was on a steady course.  Despite the positive effect on risk assets, there were also some worries that China’s growth was driven mainly by government spending, debt-fueled construction and property and consumption, which could present problems down the road.

The Australian dollar did not benefit much from the signs of stability in China, as it traded at around 0.7662 versus the greenback – some distance away from key levels above 0.77.

During the previous day, US core inflation came in slightly lower-than-expected, but this did not hurt the dollar much.  The dollar pushed the euro back below 1.10 to trade at 1.0978, but the yen was also relatively strong today, as dollar / yen fell to 103.65.  The yen made significant gains versus the euro and the pound, as euro / yen was at 113.70 and pound / yen at 127.03.

Sterling failed to keep its momentum versus the euro as the single currency rebounded to 0.8950 from a low around 0.8915 yesterday.  Faster-than-expected inflation boosted sterling temporarily the previous day, but the currency was also unable to hold above 1.23 versus the US dollar and fell back to 1.2267.

Key commodities were holding up relatively well, with oil trading above $50 a barrel at 50.83 while gold was also at $1261 an ounce, having reached 1264 earlier.

For the remainder of the day, there will be more data out of the UK in the form of employment numbers.  During the US session, the Bank of Canada will announce its rate decision – no change is expected to the 0.50% base rate.  In the US, housing starts and building permits for September will be released, as well as weekly energy inventories.