The Australian and New Zealand dollars inched higher on Monday after Chinese economic data either matched or beat market forecasts, suggesting policy stimulus there was making a much-needed impression. The Aussie dollar rose to $0.7029 and away from the recent $0.6910 low, though it faces stiff resistance around $0.7050. It bounced 0.6% last week as dovish comments from Federal Reserve policy makers undermined the US dollar.
Futures markets are fully priced for a quarter-point Fed rate cut come July 31, and imply around a 21% chance of a half-point move. The kiwi dollar firmed to $0.6715, having rallied just over 1% last week from a trough of $0.6567. Again, it faces a major chart barrier around the recent top of $0.6737. Chinese economic growth came in as expected at an annual 6.2% for the second quarter, but retail sales and industrial output both handily topped forecasts. Sales jumped a particularly strong 9.8% in June from a year earlier.
China is Australia's largest trade market, taking around one-third of its exports, so any sign of a pick-up in demand tends to benefit the Aussie, which rose 0.3% on the safe-haven yen to 75.95. "It's another well-flagged headline GDP outcome but encouraging strength in June monthly activity data, fitting the bullish narrative that China has been able to stoke domestic growth enough to offset the damage from the US trade war," said Westpac currency analyst Sean Callow.
"A promising set of numbers for Australian commodity exporters." Across in New Zealand, the main domestic event of the week will be inflation figures for the June quarter on Tuesday. Median forecasts favour a rise of 0.6% in the quarter, lifting the annual pace to 1.7% from 1.5% and closer to the mid-point of the Reserve Bank of New Zealand's (RBNZ) 1-3% target band.
However, much of the pick-up will be due to an 8% jump in petrol prices in the quarter, which have since levelled out. "The 2Q inflation print will be a mixed bag, but look "strong"," said Jarrod Kerr, chief economist at Kiwibank. "The optical illusion will fade away in the 3Q print, however. We expect inflation to fall back towards 1.3% in 3Q." "This week's CPI figures are unlikely to deter the Bank from cutting the OCR next month, because the outlook for inflation is soft," he argued.
The RBNZ holds its next policy meeting on August 7 and investors are wagering heavily on a quarter-point cut in the 1.5% cash rate. Yields on two-year bonds popped higher on Monday in the wake of the Chinese data, but at 1.22% are still well below the cash rate. Australian government bond futures dipped, with the three-year bond contract off 2 ticks at 99.020. The 10-year contract also eased 2 ticks to 98.5350.
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