Breaking: Chinese inflation data dump fails to move the needle in markets that await US CPI


The Chinese inflation data dump has arrived as follows:

  • China July CPI +2.7% YoY (Reuters poll +2.9% ).
  • China July CPI +0.5 pct from previous month (Reuters poll +0.5 pct).
  • China says July food CPI +6.3 pct from a year ago; non-food cpi +1.9 pct.
  • China July PPI +4.2 pct from a year ago (Reuters poll +4.8 pct).
  • China July PPI -1.3 pct from previous month.

Producer inflation was expected to ease in July given the reversal in commodity prices, but the subdued household demand was expected to limit the pressure on consumer inflation, as analysts at Westpac explained. 

Meanwhile, Wu Chaoming deputy dean of the Financial and Information Research Institute believes that while there is a low possibility of lowering the reserve ratio and interest rate in the future. This is due to the influence of factors such as the Sino-US interest rate gap that will remain inverted for a long time, the pressure of domestic price stabilization and the lack of demand restricting the effect of monetary easing.

 "Considering that inflation pressure is likely to pick up in the third and fourth quarters, and other major economies may continue to maintain the basic policy stance of raising interest rates, the possibility of a comprehensive rate cut and RRR cut in the second half of the year is low, but the loan market quoted rate (LPR) remains unchanged.''

AUD update

As a consequence of the data, the Aussie is flat on the data. markets are awaiting US inflation data.

''The market needs to decide whether the slowing headline is more important than the sticky and strong core,'' analysts at TD Securities said. ''The USD remains sensitive to US data surprises. ''We will be short-term focused on whether this number shakes resilient risk sentiment, as that will also help inform near-term USD price action.''

If the US dollar manages to find a bid on today's US inflation data, then the downside in AUD/USD could play out as follows:

AUD/USD H4 chart

About the Consumer Price Index

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index.

The purchase power of the CNY is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

 

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