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October 2015

Daily Currency Insight

Published: Wednesday 14 October 2015

Chinese inflation fell back to 1.6% last month; that's below the previous month's 2.0% and below market forecasts. The Asian stock markets didn't like it and fell marginally on the news. It does, however, restore the expectations of further economic stimulus from the Chinese authorities and that could be a little more encouraging.
Reserve Bank of New Zealand's Governor Wheeler said further interest rate cuts were likely but that this will depend on future data; especially Chinese growth and ongoing weakness in the Chinese Yuan. However, he voiced concerns over what low interest rates will do for house price inflation; an ongoing concern for the RBNZ. The NZ Dollar weakened a tad on the news but will probably wait for a more certain declaration of rate cuts before declining properly.
The Australian Dollar, on the other hand, is 4 cents weaker against the Pound this morning in reaction to slowing Chinese data in spite of a small recovery in Australian consumer confidence. The Australian economy is more directly impacted by Chinese news because China is now Australia's number one export market. As long as the Aussie employment data, due early tomorrow morning (UK time) doesn't throw up any shock horror headlines, I suspect the AUD will recover its composure by tomorrow.  That makes this morning a potentially positive AUD buying opportunity.
Sterling slipped a little yesterday after inflation sneaked onto the dark side (-0.1%) but all other data was largely in line with expectations.  We saw the Pound fall below that €1.3450 level and it remains below there now and we saw it trickle lower in most other pairs. That may be short lived though as long as this morning's unemployment and wages growth data is in line with expectations. We expect the unemployment rate to remain at 5.5% and average wage growth to have picked up to around 3.0%. With inflation being non-existent, this does fuel spending power and that will be seen as a benefit to the economy.
The rest of the day brings Eurozone industrial production which ought to reflect a 0.5% decline and we get to see US retail sales which will be 0.1 to 0.2% monthly growth. Neither of these stats will cause any major waves unless the actual figures are seriously out of whack with the forecasts. We will also see the Beige Book from the US Federal Reserve. This is a regional look at the US economic performance and forms part of the next Federal Reserve meeting agenda, so it is a little foresight for the markets. We will; read with interest as we try to determine when or if US interest rates might rise. 
In other news, you may have heard that US litigiousness has moved to a whole new level.  Sean Mace is suing The National Park Service in America after a large pine cone fell from the tree he was sitting beneath knocking him out and causing him an injury to his head as well as alleged brain damage. He says that there should have been signs saying pine cones might fall and, because there weren't, he is due $5 million in compensation. Good grief.
I don't like country music but I don't mean to denigrate those who do. And for the people who like country music, denigrate means 'put down'.
Bob Newhart