China reflation story continues, but fails to lift AUD/USD

The data released in China today showed the PPI backed-off from the highest level since 2008, but remained firm and printed in line with the estimate of 7.5%. However, the upbeat data failed to lift the AUD/USD, leaving it weak around 0.7490.

CPI drops below 1%

The Chinese CPI fell printed at 0.9% y/y vs. expected print of 1.0%. The cost of living declined 0.3% month-on-month.

Reflation story still intact

The consensus is that the reflation story is still intact despite the PPI falling from 7.8% to 7.6%. Moreover, a sequential drop in the PPI could signal the reflation story has ended. Nevertheless, the drop from 7.8% to 7.6% could strengthen the peak inflation argument.

So far the markets have not reacted in any way to the Chinese data. The FX markets remain at the mercy of the action in the Yen crosses. Meanwhile, the Aussie is also feeling the heat of a sharp drop in the Westpac Aussie Consumer Confidence index.

AUD/USD Technical Levels

A break above 0.7524 (Dec 14 high + 38.2% fib of 0.7160-0.7749) would open doors for a rally to 0.7569 (Jan 17 high) and 0.7588 (Jan 20 high). On the other hand, a breakdown of support at 0.7455 (50% fib of 0.7160-0.7749) could yield a sell-off to 0.7417 (Dec 7 low) and 0.74 handle.