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Chinese data disappointing across the board; European production and labour data weak; soft US retail sales continued the roll of poor economic data for markets to absorb

Currencies
Chinese data disappointing across the board; European production and labour data weak; soft US retail sales continued the roll of poor economic data for markets to absorb

by Raiko Shareef

NZ Dollar

Much of the same from the NZD yesterday, with another look at support rejected around 0.8420. NZD/USD sits 0.3% higher today at 0.8460.

The weak US retail sales report saw NZD jump higher in the early hours of this morning. But that bounce was contained to 0.8480.

We’re still of the mind that, while 0.8400 will be hard to break, any rallies to the topside will be sold into, given the much-hyped weakening in NZ’s macroeconomic story over the past month (subdued inflation, falling dairy prices, RBNZ on hold).

Today’s retail sales figures for Q2 could be an important directional cue, then, with traders on both sides of the fence looking for an excuse to try something.

On the topside, short-term players will be looking for a strong result that pushes NZD/USD up through 0.8530, which might trigger a squeeze higher as those betting on a breach of 0.8400 bail out of the trade. A weak number would clearly give the latter contingent some encouragement, and we will likely see yet another test of that strong support level.

Analyst expectations for the retail sales figure centre around a 1.0% q/q gain in Q2, building on the 0.7% rise in Q1. Our own expectation is not too far off at +0.8%.  The latest BusinessNZ Business PMI is also due today, but should not trouble the scorers.

Support at 0.8400 still stands, and we pick resistance at 0.8530.

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Majors

A data-driven 24 hours, for a change. Outturns from China, Europe, the UK, and the US helped to establish the currency leaderboard overnight. Overall the USD is little change, with the Bloomberg Dollar Spot Index just 0.1% higher. Excluding a sharply lower GBP, though, the USD would be (rightfully) marginally weaker.

Starting off in our time zone, Chinese data released yesterday were disappointing across the board. First off the rank was an eye-popping collapse in credit growth, with the broad Total Societal Financing measure rising by just CNY 273b in July, down from CNY 1,970b in June, and the weakest reading since 2008.

Later on, industrial production, retail sales, and fixed asset investment numbers for July all undershot expectations. The benchmark Shanghai Composite equity index initially plunged by nearly 1.0%, before reversing as expectations grew that policy makers will expand stimulus measures in order to meet growth targets. The AUD and NZD likely benefitted from that sentiment, pushing them to the top of the G10 leader board.

In Europe, the bad news continues to roll in, with eurozone industrial production slipping 0.3% m/m in June, against expectations for a 0.4% rise. Across the Channel, the UK labour market report showed the unemployment rate edge lower to 6.4% as anticipated, but actual employment growth printed a lowball figure (+167k vs +270k exp.).

The GBP lost a bit of ground on those figures, but the subsequent collapse came on the back of the BoE’s Quarterly Inflation Report. There, despite cutting estimates for spare capacity (ostensibly inflationary) and upgrading unemployment forecasts, the Bank emphasised that low wage growth would temper inflationary pressure. This extends the walking-back of what was seen to be a hawkish BoE back in June, and GBP/USD lost 0.7% to 1.6690 as a result.

Last on the data front, US retail sales were disappointing, with core sales (which exclude vehicles and petrol) up only 0.1% m/m, against expectations for a 0.4% gain. This helped spark a USD sell-off, with AUD and NZD being key beneficiaries. The EUR rallied strongly, too, but gave up all its gains later in the session to end up flat for the day at 1.3370.

The day ahead should prove less action-packed, with the data calendar lighter. Of intense interest will be advance GDP readings for German and the eurozone as a whole. These are widely expected to read negatively, but investors fear an even worse result.

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Source: CoinDesk

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