AUD/USD to Drop on Chinese CPI

AUD/USD is likely to have a bad start to the week as China’s inflation is higher than expected. The Australian economy is very sensitive to any news from China – its main trade partner and the world’s second largest economy.

photo © 2007 Jason Wesley Upton | more info (via: Wylio)

China released its consumer price index on Saturday morning, after the markets have closed. Inflation in China is worse than expected – it passed the 5% and reached 5.1%. Early expectations stood on 4.7%, up from 4.4% last month. All the figures are annualized.

For quite a long time, there are rumors and statements about a rate hike in China. The last time this happened was in October. Since then, the Chinese authorities raised the reserve ratio requirement from its banks – another measure that tries to stop the flooding of cash – another means of curbing high demand and avoiding a rate.

The last hike of the reserve ratio rate was just on Friday – China raised it by 50 basis points and this was actually a relief for the Aussie – the notion was that a hike of the requirement from the banks is yet again a substitute for a real hike of the interest rate. AUD/USD rose on this figure.

But the huge surplus in China’s trade balance, as shown just this Friday as well, means too much money is pouring into the economic giant – CPI over 5% leaves less room for speculation.

At the beginning of the week, just as markets open, we also have a speech from Australia’s Glenn Stevens, the governor of the central bank. It will be interesting to see what he says about this.

AUD/USD parity is likely to get further away, at least at the beginning of the week.

Stay tuned for an outlook for the Australian events in the upcoming week and an updated technical analysis for AUD/USD. It will be released during the weekend.

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