Better than expected labour market data out of the US overnight helped fuel gains for equity markets in Asia, but a lack of local data ensured that risk currencies had a ceiling. Even NZDUSD, which rocked around 50 pips higher in early trade, hit a wall around 0.8210. The aussie also managed to regain some ground against USD, but the pair found significant resistance around 1.0300.
Mid-way through the session the IMF released its regional economic report for Asia. Whilst the report didn’t tell us anything drastic, it did touch on a few important points, namely the future of economic policy in the region and Asia’s role as the global growth leader. The IMF stated that there is room for more policy easing from some Asian countries should activity fail to pick up as anticipated, most likely referring to the economic powerhouse of the region, China. Overall, the IMF’s prediction for growth this year in Asia is 5.4%, 0.4% lower than its April forecast.
The revised figure likely stems from a more severe than expected slowdown in China. Current estimates suggest that China will have expanded by only 7.4% this quarter, which would likely mean growth for the year would be at its slowest pace since 1999 this year.
Nonetheless, in the grand scheme of things these figures wouldn’t be considered that bad.
However, major Chinese banks throughout the country are resisting government pressure to lower their borrowing costs. This action could significantly hinder growth in the world’s second largest economy, especially considering the already tight conditions in credit markets.
Elsewhere, Australian Treasurer Swan’s talk on CNBC almost went against what was stated in the aforementioned report from the IMF. The Treasurer was quick to point out that he doesn’t think Asia should be, or can be for that matter, the driver of global growth. Swan stated that countries in Europe should get their act together quicker.
Ones to watch: AUDJPY
This pair has found it tough going on the few occasions it has been able to break below 80.00 since the middle of the year. Every time it does the pair hits a wall between 79.50-70, then price action retraces. Now, the pair is finding some resistance around its 100day sma.
Looking ahead, there appears to be scope for a push higher in the medium-term, possibly towards 83.00. However, there is some indication of long-term weakness in the pair which may cause any rally to stop short.
AUDJPY – daily