China's latest economic report card will dictate how the Australian dollar performs today

China Photos / Getty Images
  • The Australian dollar recovered from early losses on Tuesday to close the session flat to higher.
  • The movements largely reflected speculation as to whether or not a near-term RBA rate cut is likely in the months ahead.
  • Chinese economic data will dominate Wednesday’s trading session. Most interest in markets will be on the monthly indicators, rather than the Q1 GDP report.

The Australian dollar recovered from an early dip on Tuesday, oscillating on speculation as to whether or not the Reserve Bank of Australia (RBA) will cut official interest rates.

While that will continue to influence the Aussie for some time yet, Chinese economic data, headlined by Q1 GDP, will likely dictate which direction it will move on Wednesday.

Here’s the scoreboard at 7am in Sydney on Wednesday.

AUD/USD 0.7173 , 0 , 0.00%
AUD/JPY 80.34 , -0.02 , -0.02%
AUD/CNH 4.8146 , 0.0042 , 0.09%
AUD/EUR 0.6357 , 0.0016 , 0.25%
AUD/GBP 0.5497 , 0.0022 , 0.40%
AUD/NZD 1.0605 , 0.0002 , 0.02%
AUD/CAD 0.9577 , -0.001 , -0.10%

After opening the session at .7173, the AUD/USD dipped to .7140 following the release of the minutes of the RBA’s April monetary policy meeting.

“The Minutes were interpreted as dovish with the Board openly discussing the conditions under which it could cut rates,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“The other changes worth noting were a subtle shift in the degree of confidence in the labour market and softer tones on the housing market.”

After trading softer for the majority of the Asian session, that weakness was reversed in early European trade, sparked by an article from noted RBA watcher Terry McCrann that hosed down speculation that a near-term RBA rate cut was imminent.

“The Reserve Bank did not weigh an interest-rate cut at its last policy meeting – as one online headline had it yesterday after the release of the minutes of that meeting,” McCrann wrote.

The article helped the Aussie recover earlier losses against the greenback and helped to spur on modest gains against most of the major crosses. Stronger risk appetite during the session, helped by a surprise acceleration in Chinese new home prices in March, also provided a tailwind for the Aussie despite modest greenback strength.

Investing.comAUD/USD Hourly Chart.

The euro was undermined by reports that a “significant minority” of ECB policymakers have doubts about the prospects about a recovery in the Eurozone economy in the second half of this year as the bank’s current forecasts foresee. The weakness in the euro came despite a further improvement in the closely-watched ZEW survey in Germany.

The British pound also came under pressure on reports that Brexit talks between Theresa May and Jeremy Corbyn had stalled.

Turning to the day ahead, the direction of both the Aussie and broader financial markets will likely be dictated by the release of major Chinese economic data, including Q1 GDP.

While most headlines will be focused on the GDP print — expected to ease to a year-ended growth pace of 6.3% from 6.4% in Q4 — markets are likely to pay far more attention to readings on retail sales, industrial output and urban fixed asset investment for March that will be released alongside the report.

This will provide a far better indication as to the current trajectory of the Chinese economy rather than the GDP report that will be influenced by weaker activity levels in the first two months of the year.

All the Chinese data will hit at midday AEST.

Before the Chinese data dump hits, New Zealand Q1 CPI data will be released at 8.45am AEST. A quarterly increase of 0.3% is expected, leaving the gain from a year earlier at 1.7%. The RBNZ will also release its sectoral factor inflation reading — it’s preferred measure of underlying price pressures — at 3pm Wellington time. Previously, it rose by 1.7% in the year to December last year.

Later in the session, other data highlights include UK CPI, Eurozone trade and inflation, Canadian inflation, along with trade figures from the United States.

On the central bank front, Bank of England Governor Mark Carney and Harker and Bullard from the Fed will all be in action. The US fed will also release its latest Beige book on economic activity late in the session.

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