Chinese figures on fixed asset investment, industrial production and retail sales for May will be released on Thursday at 0200 GMT. Positioning might take place on the aussie as the numbers hit the markets, due to it being perceived as a liquid proxy for China’s economy by the investor community.
Fixed asset investments in urban areas are anticipated to have grown by 7.0% y/y in the year to May, the same pace as in April. Meanwhile, industrial output is projected to have marginally eased in May after a surprisingly solid reading in April, expanding by 6.9% y/y (vs 7.0% in April), while retail sales are expected to accelerate to 9.6% y/y (vs 9.4% in April).
Overall, if the prints come in line with forecasts, they would point to robust growth, especially in light of government efforts to curb pollution and limit financial risks stemming from excessive credit by the so-called “shadow” banking sector.
In terms of market reaction, Australia’s close economic ties with China have rendered the Australian currency a liquid proxy for China’s economy. In this respect, besides the yuan, the Australian dollar will also be closely watched as the data are made public; a strong Chinese economy is seen as aussie-positive.
Focusing on aussie/dollar, better-than-expected releases out of China are likely to spur buying interest for the pair. AUDUSD is at the moment attempting a more conclusive break above the 23.6% Fibonacci retracement level of the January 26 to May 9 downleg at 0.7581, with the current level of the 50-day moving average at 0.7597, as well as the 0.76 round figure seemingly acting as a resistance zone to gains. A move above would turn the attention to the region around the 38.2% Fibonacci mark at 0.7687, which also encapsulates the June 6 seven-week high of 0.7676 and the 0.77 handle. Conversely, weaker data releases may exert downside pressure in AUDUSD. The area around the 0.75 handle, which was relatively congested in previous weeks, may provide support to declines, with shaper losses increasingly turning the focus to May 9’s one-year low of 0.7410.
Of more importance than Thursday’s numbers though, are trade deliberations between the US and China. In this respect, the White House said it plans on making an announcement by Friday that may see the US imposing a 25% tariff on a list of Chinese products – amounting to $50 billion – imported to the country. China warned that such an action would result in it taking off the table past trade-related commitments it made to the US. The aussie is also likely to be negatively affected in case of escalating tensions. In the meantime, following this week’s US-North Korea summit, US Secretary of State Mike Pompeo will tomorrow be in Beijing to discuss bilateral as well as broader international issues.
Lastly and related to movements in the aussie/dollar pair, it should be kept in mind that the US central bank will be completing its meeting on monetary policy later on Wednesday (1800 GMT), with the Fed chief attending a news conference half an hour later. Moreover, Australia’s employment report for May is slated for release on Thursday (0130 GMT), before the abovementioned Chinese data.