Australian Dollar (AUD) Plummets following disappointing Chinese Data

The Australian Dollar to US Dollar (AUD/USD) exchange rate fell by close to half a percent in yesterday’s Australian trading session following the release of poor Chinese data. This trend continued in offshore sessions with the AUD falling by almost 2% in response to the disappointing trade data. Boosted Business Confidence acted to offer little consolation – leaving investors questioning whether like all good things the AUD’s rally had come to an end.

At 0630 AEDT on Wednesday, the AUD was trading at 0.7264 US cents, down from 0.7311 cents on Tuesday after reaching an eight week high on Monday of 0.7335.

The AUD has experienced a perfect run of late; rallying for nine consecutive sessions equalling the third longest stretch of daily gains since the currency was floated. Since reaching a low of .6934 on September 29, the Aussie rallied more than 6% against the US Dollar. The run offering much needed respite to the struggling currency.

The official Trade Balance figure released out of China yesterday indicated that imports slumped nearly 18 per cent in September, sliding for the 11th straight month. The result although in line with expectation was enough to unnerve investors and act as a reminder that Australia’s largest trading partner and the world’s second largest economy continues to face challenges which will continue to negatively impact Australian construction and commodity industries.

Confidence in Australian business grew in September following the Federal Government Leadership change and calmer global conditions the NAB reported yesterday. The result, based on the bank’s monthly survey of 400 Australian companies indicated that the main business confidence index jumped from a two and half year low in August of 1 point – to 5 points in September. The result varied widely between industries with mining companies reporting the lowest result at an index –14%

The NAB report suggested that the lower Australian dollar was assisting the “non-mining sector recovery” build momentum. The bank kept with its forecast that the Reserve Bank of Australia would leave rates on hold at 2% for the foreseeable future, with no further monetary easing.   JP Morgan’s chief Australian economist Ben K Jarman agreed that Tuesday’s survey results suggested the RBA had no need to cut the cash rate further.

The Pound dips but recovers as UK Inflation comes in below Zero 

UK inflation as measured by the Consumer Price Index fell to -0.1% in September, falling below economist’s forecast of 0%. The CPI rate has been at or close to zero for most of this year, first hitting negative territory in April – for the first time in 45 years. Inflation is now not expected to reach 1% until mid-2016 according to the Bank of England’s monetary policy committee (MPC).

While economists are predicting interest rates to start rising towards the middle of next year, current market conditions suggest a later date. Economists stating that today’s inflation data give the Bank of England (BoE) room to keep interest rates at the record low 0.5 per cent for longer.

“Deflation of 0.1 per cent in September will undoubtedly fuel market expectations that the BoE will not be raising interest rates before the latter months of 2016, and could very well hold fire until 2017,” Howard Archer, chief economist at IHS, said.

Matthew Ryan, strategy analyst at Ebury, added: “This will not be good news for BoE hawks, and provides a further indication that rates in the UK are unlikely to rise until the second quarter of next year at the very earliest.”

With plenty of high tier data due for release out of local and international markets over the next 24 hours we can expect this volatility to continue. This morning China will release its monthly inflation figure in the form of CPI, followed by employment data out of the UK later this evening, Retail Sales figures out of the US early tomorrow morning; capped off by local employment figures to be released 10:30 Thursday.