Chinese Stimulus Sparks Aussie & Kiwi To Rally Ahead Of Major Data

The Aussie and kiwi are trading on positive notes this morning as the US dollar weakened as traders are shifting their hopes of an early 2015 rate increase by the US Fed. The Aussie added 38 points to climb to 0.8782 while the kiwi was up 35 points to trade at 0.7952. Comments from both the Australian Central Bank and the New Zealand Central Bank had little effects on the currency while a decline in NZ consumer confidence surprised investors.  Optimism around the US economy has faded too but the doves led by Janet Yellen have reasserted dominance. Still, the US unemployment rate is now lower than Australia’s while the collapse in commodity prices is hurting Australia’s terms of trade. Inflation data due on Wednesday for the September quarter will be critical in shaping consensus on the outlook for Australian interest rates.

The RBA has signaled it is considering macro-prudential lending restrictions to stem worrying house price inflation rather than lift its record low 2.5 per cent cash rate, which would risk pushing up the Aussie.

NZ consumer and business confidence have eased from their highs. The dip comes as the Reserve Bank of New Zealand signals a pause in its interest rate hiking cycle to assess the impact of its four increases in 2014, and as the pace of economic growth looks set to slow from a peak in the first half of the year.

The big currency mover was word from China that it will introduce additional government support to help spur economic growth. China’s central bank is planning to inject up to 200 billion yuan ($US32.8 billion) into about 20 large national and regional banks, according to banking executives briefed on the matter, in another step aimed at spurring the world’s second-largest economy. The plan falls short of a more sweeping effort, such as an interest-rate cut that some economists say is needed to lift the economy. Instead, the new infusion shows that Beijing is continuing to use targeted measures to counter the slowdown. 

The New Zealand dollar has gained against the Japanese yen as improved US economic data bolstered sentiment on global growth, prompting investors to reduce holdings of haven currencies such as the yen. The yen was the worst performing major currency “as the improvement in general risk sentiment undermined the ‘safe haven’ bid for the currency.  Japan’s prime minister noted this morning that the planned tax increase from 8 per cent to 10 per cent was intended to help secure pension and health benefits for the future.  The JPY fell against the US dollar to trade at 107.22 while it declined 47 points against the euro to exchange at 136.87

The Japanese economy shrunk 7.1 per cent between April and June compared with a year ago after Mr Abe’s government raised consumption tax from 5 percent to 8 percent. A second rise has strong backing from the Bank of Japan, the finance ministry, big business and the International Monetary Fund, which all want action to reduce the country’s mountainous debt. A postponement would require a change in the law.

This week traders will focus on Chinese data, as fears over the protest in Hong Kong and the spread of Ebola continue to stress traders.  The major data will be released tomorrow, including third-quarter gross domestic product (GDP), industrial output; fixed asset investment and retail sales lackluster data could send Asian currencies into turmoil.