Fears of Chinese property market contagion weaken Australasian dollars

We are in a period where central bankers and the anticipation of their decisions has never been more influential. Coming out of zero or virtually zero interest rate period, that was inevitable but there are so many other factors at play.

Many of China’s property developers are in dire straits and there is fear that this financial drama could infect the wider Asia/Pacific region. So the Australian and New Zealand Dollars have weakened as investors seek safer ports for their funds. GBPAUD was up to AUD 1.8420 last night but has fallen half a cent this morning. The GBPNZD was also higher late yesterday at NZD 1.9090 but is 70 basis points lower this morning.

China factory gate prices rise at fastest pace since 1995

The reason for that overnight falls is also Chinese in nature. China’s factory-gate prices rose at the fastest pace since 1995 last month. Producer Price Inflation was up 13.5% in the year to October and that is very encouraging for the countries that supply China’s raw material demands. Countries like Australia and New Zealand.

GBPUSD downtrend continues

Elsewhere, Sterling has stabilised for now but there are fears the GBPUSD rate could be on the brink of a medium-term downtrend. Having peaked at $1.42 in May, this pair (affectionately known as ‘cable’), has been in a downward trend ever since. The current top of that range is $1.3775 and the bottom is approximately $1.3420. As long as the spikes reach lower heights and the lows test lower levels, the downward momentum is intact. So we can at least use these parameters as our buying and selling targets.

Since its dive in November, the GBPEUR rate has been developing a moderate upward trend. Traders appear to get nervous around €1.1750 (roughly equivalent to €1.00 buying 85 pence). So that is capping this rate for now. We are not anticipating any major data surprises from either side of the Channel today, so this pair may well tread water.

US inflation data awaited for rate hike cues

From the US we will get the weekly jobless numbers and Consumer Price Inflation data. The latter is most likely to drive trader decisions. Higher inflation is inevitable after last year’s debacle but what we all need to know is the tolerance level the Federal Reserve has for inflation. It is forecast to be 4.3%; well above their comfort zone of 2.0% but is it transitory, as some Fed members believe, or is this a more sustained period of inflation that could be damaging to the US economy? It is largely unknowable without a reliable crystal ball but it will create supply and demand fluctuations and that influences the value of the US Dollar.

Have a great Wednesday and just remember, you should give 100% in everything do…unless you’re donating blood of course.

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