Saturday, September 11, 2010

Early Release China Data Favorable to Global Risk Appetite but Traders Might be Cautious of Rate Hike

Overall bullish August Chinese economic figures released after the US market close on Friday (Saturday in China) showed expanding M2 money supply (loan growth) as well as better than expected industrial production and a 3.5% CPI rate (mostly due to food inflation caused by the disrupted shipping and destroyed crops from flooding). [1, 5]  1.7% of the CPI figure results from the food component. [4]

However, the deposit savings rate in banks can not keep up with inflation (the one year deposit rate is 2.25%) so there is a call by some for the government to raise the deposit rate so that savers do not have a negative return.[2, 3]  This might cause traders to be wary of some sort of rate hike announcement next week.

I have therefore switched to a bullish stance on the AUD/USD for now, unless there is some sort of enormous rate hike announcement by the PBOC, which seems unlikely since the August inflation announcement might be considered an outlier due to the floods.

1. UPDATE 2-China economy shows inner strength in buoyant data  
    Zhou Xin and Simon Rabinovitch, Reuters
2. China Should Raise Deposit Rates, Business Journal Cites PBOC Adviser 
    Huang Zhe, Bloomberg
3. China PBOC Mon. Pol. Panel Member Calls For Rate Hike: Press
4. China Data Wrap: Economy Powers Along, Despite Global Woes
5. China Aug M2 growth up 19.2 pct y/y, above forecast 
    Eileen Wang and Simon Rabinovitch, Reuters