AUD and NZD tumble as Chinese data miss
The Australian and New Zealand dollar plunged on heavy selling pressures amid disappointing economic data from China. The Aussie fell almost 1% to 0.7160 against the greenback, the lowest level since early November, while the Kiwie gave up more 1.10% as it reached $0.6780. Overall, investors fled riskier assets and took shelter into safe haven currencies such as the Japanese. Interestingly, the Swiss franc fell 0.25% against the buck, which suggests that the recent slowdown in Switzerland’s economic growth has make the Swissie less attractive.
The last batch of data from the world’s second largest economy came on the soft side, suggesting that the downturn is deepening. The ongoing trade war between the US and China is undoubtedly part of the equation though. Chinese retail sales fell short of expectation as they rose only 8.1%y/y in November, missing estimates of 8.8% and down from 8.6% in October. Similarly, industrial production missed forecast as it came in at 5.4%y/y versus 5.9% previous reading and forecast. Overall, it seems that the combination of faltering market confidence, thanks to Donald Trump relentless attacks on China, together with the country’s ongoing economic slowdown due to the normalisation process that is underway – i.e. shifting toward a domestic generated growth from an export driven one – has hurt significantly China’s industrial sector.
On the bright side, the conflict between Xi Jinping and The Donald has seen appreciable amelioration lately as the 90-day truce gives both side a breath of fresh air. For now, investors would remain nervous against the backdrop of tumultuous financial market conditions and tense geopolitical situation. It is just not the right time to hold risky assets.
Japan’s growth slows
Japan’s Q3 GDP fell 2.50%, its hardest contraction since June 2014. A sharp drop in October’s current account balance supported the gloomy picture. The Bank of Japan’s Q4 Tankan data confirms that business is heading downward.
Manufacturers’ sentiment was unchanged, following three quarters of declines. Industrials remain largely more upbeat, as the impact of major typhoon Trami and earthquake from September requires the reconstruction of infrastructure in the region. Overall however, trade tensions between the US and China remain, and bilateral discussions with Washington will start as early as January 2019. The Japanese government will aim to safeguard tariffs related to US beef. USD/JPY is currently trading at 113.50, approaching the 113.70 range short-term.
