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USD: Retail sales data is seen rising 0.8% on the headline measure. The dollar will be sensitive to signs of firmer data to validate belief that the Fed could be ‘tapering’ as early as the September meeting, but reaction will be limited as real focus remains with the jobs data.

AUD: The minutes to the July RBA meeting will be released overnight.   The sense given from the statement is that the RBA are content to see the Aussie dollar depreciate further as a means of supporting the rebalancing of the Australian economy.

Idea of the Day

The reaction to data from China overnight reflects the extent to which markets are sensitive to any change in dynamics. The data for GDP, retail sales and industrial production were broadly in line with expectations, but China sensitive currencies such as the Aussie were higher, mainly breathing a sigh of relief on the fact that the data were not weaker than expected.

But beneath the surface there remain big issues with the extent of credit expansion seen in recent years.   Even though money market rates may have normalised from the blip seen 3 weeks ago, the underlying issues of too much unregulated lending remains and will re-surface at some point in the future.   So whilst we may have met the latest data with some relief, it would be dangerous to follow this through.   Risks remain beneath the surface.

Latest FX News

CNY: Lots of data released overnight, with GDP slowing to 7.5% on YoY terms, in other words sitting right on the government’s target.   Production data was 8.9% (softer than expected), whilst retail sales was firmer at 13.3% (expected and previous 12.9%). USDCNY sits just above the 50d moving average, currently at 6.1362.

AUD: The Aussie took some comfort from the tone of Chinese data, China being a key export destination for Australia’s commodities sector.   AUDUSD nudged below the 0.90 level very briefly on Friday, so underlying tone remains fragile.

JPY:  USDJPY remaining below the 100 level, but the tone remains consolidative.   The domestic focus is on Japan’s upper house elections which take place this coming weekend.   A strong showing by Abe’s LDP is seen as giving further strength to his agenda of domestic reforms.

Further reading:  Selling England by the pound – GBP/USD on the defensive