Chinese Inflation Data Sparks Stimulus Hopes

The euro tumbled on Tuesday morning dipping 6 points as the greenback continued to rally after Federal Reserve speakers pushed the December rate increase and comments from Mario Draghi on Monday and another speech later in the European trading session. The euro is trading at 1.0743 while the greenback is holding above the 99.00 level at this writing the DX is at 99.18. The euro erased an advance versus the dollar amid speculation the European Central Bank is moving closer toward cutting its deposit rate when it meets next month.

The 19-nation currency traded near its weakest level since April after Reuters reported that a consensus is forming around cutting the deposit rate in December, citing four unidentified members of the ECB Governing Council. There were some brief headlines on Monday about the Eurogroup holding the next tranche to Greece of 2 billion euros on technical issues. With the euro near a six-month low and a December rate hike from the Federal Reserve looking likely just as the European Central Bank hints at more stimulus traders seemed to be ready to sit tight counting down days until December arrives.

The Asian markets were busy with a row of data release this morning ranging from lackluster Chinese inflation data to a disturbing Current Account total from Japan.  Japan said Tuesday its current account surplus more than quadrupled in the six months to September thanks to an improving trade picture and buoyant returns on the country’s investments abroad.

The 8.7 trillion yen ($70.7 billion) figure for April-September — the first half of the fiscal year — was well up from the 2.0 trillion yen a year earlier, according to official data. Japanese Prime Minister Shinzo Abe came to power nearly three years ago with a mandate to rejuvenate the world’s third-largest economy and end years of deflation-fuelled lethargy. But his signature “Abenomics” policies centered on aggressive monetary easing, government spending and structural reforms have achieved mixed results so far. Japan’s current account is the broadest measure of its trade with the rest of the world, including goods and services, tourism and returns on foreign investment. The USDJPY is trading at 123.22 and against the euro at 132.35.

The big attraction this morning was Chinese inflation data which has now sparked talk of stimulus from the Peoples Bank of China. China’s inflation eased in October, leaving room for Beijing to stimulate its slowing economy if necessary. Consumer prices rose 1.3 per cent over a year earlier, down from September’s 1.6 per cent, government data showed Tuesday. That was driven mostly by a 1.9 per cent increase in food costs.

Lower inflation leaves room for Beijing to cut interest rates or take other steps to stimulate its cooling economy after growth weakened to a six-year low of 6.9 per cent in the latest quarter. October trade was unexpectedly weak, raising expectations Beijing might face more pressure to shore up growth, though Chinese leaders have said they want to avoid an across-the-board stimulus. The Aussie is stuck in the middle of the booming US dollar and the declining Chinese economy. The AUD is flat at 0.7048. The kiwi dipped 5 points to 0.6528. There is no significant data for the balance of the trading day leaving traders cued to Mario Draghi’s speech later in the session.