AUD, NZD Weakens As Higher Chinese Inflation Suggests Tightening

By David Liu,

The Takeaway : Higher Chinese inflation could mean tightening >> reduced demand for Australian, New Zealand raw materials >> AUD, NZD falls

The Australian and New Zealand dollars weakened after China’s March consumer price index showed a higher rate than expected. With a faster price increase, the People’s Bank of China and the government may tighten, though deflationary PPI and at-target CPI may stave off large scale actions. China’s current inflation target for 2012 is set at 4.0%.


China Price Indices














Despite the spike lower in the so-called Aussie and Kiwi against the US dollar, market reaction to the Chinese data is relatively subdued. Both currencies have been selling off as markets react to Friday’s worse than expected NFPs. Even with higher consumer prices, the People’s Bank of China could further adjust its fine-tuning in order to cool down the domestic economy. With the divergence between PPI and CPI, the bank could see that inflation pressures are caused by domestic goods, especially agriculture. This could lead to adjustments in China’s economic policies more focused on the domestic economy rather than hurting the export sector.

AUDUSD 5 minute chart. Line indicates time of data release. Chart generated with FXCM Strategy Trader.

NZ DUSD 5 minute chart. Line indicates time of data release. Chart generated with FXCM Strategy Trader.

--By David Liu, DailyFX Research
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