AUD, NZD Reaction Muted As Chinese Inflation Fails To Break Record

By David Liu,

THE TAKEAWAY : Chinese CPI as expected, PPI below record > PBoC may pause tightening > AUD, NZD flat

The Australian and New Zealand dollars remained relatively unchanged after August Chinese consumer prices tapered off from the recent record. Investors saw easing price pressures in the world’s 2nd largest economy as a sign that government officials may pause their tightening. However, higher PPI may stir additional concerns.

EVENT	ACT	EXP	PREV
Consumer Prices (YoY) (AUG)	6.2%	6.2%	6.5%
Producer Prices (YoY) (AUG)	7.3%	7.2%	7.5%

The moderate slowing of consumer prices in August represented the first time prices have slowed in 4 months, tapering off from a post-recession high of 6.5% reported last month. Despite the data suggesting that the People’s Bank of China may slow down its pace of tightening to prevent the domestic economy from overheating, critical price components may still point to a sustained effort by the central bank and government to protect domestic purchasing power.

A breakdown of the eight major products taken into account shows food prices rising 13.4% on a year-over-year basis in August, relaxing from 14.8% in July, while pharmaceutical products rose to 4.1% from 3.6% previously. Pork prices led food components, rising 45.5% on a year-to-year basis.

Data from the Statistics Ministry, People’s Republic of China

The Australian and New Zealand dollars, the currencies of the two largest raw materials suppliers to China, were relatively unchanged against the greenback. Some weakness was seen as the PPI, measuring goods prices paid by manufacturers, beat expectations though still lower than the previous post-recession high of 7.5% set last month. At the time of writing, the two oceanic currencies are leading gainers against the US dollar, with the AUD +0.551% and the NZD +0.669%.

AUDUSD 5 minute chart; vertical line indicates time of release. Chart generated with FXCM Strategy Trader.

NZD USD 5 minute chart; vertical line indicates time of release. Chart generated with FXCM Strategy Trader.

DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/market_alert/2011/09/09/AUD_NZD_Reaction_Muted_As_Chinese_Inflation_Fails_to_Break_Record.html

>To order reprints of this article, click here: Reprints