Yuan, Australian Dollar Little-Changed on Chinese Inflation Data

Talking Points:

• Chinese PPI comes in at -1.1% YoY for June vs. -1.0% Expected, -1.4% Prior
• Chinese CPI comes in at 2.3% YoY for June vs. 2.4% Expected, 2.5% Prior
• The Yuan and Australian Dollar remains relatively unchanged against US Dollar

The Chinese Yuan (CNH) and the Australian Dollar were little-changed after China reported June’s Producer Price Index (PPI) and Consumer Price Index (CPI) figures. PPI fell 1.1 percent year-on-year, marking the smallest drop since April 2012, against market expectations of a 1.0 percent fall and a prior month decrease of 1.4 percent. CPI rose 2.3 percent over the same period, printing below expectations of 2.4 percent result and last month’s expansion of 2.5 percent.

Softer inflation figures imply China may be relatively slower to tighten monetary policy. Expanding monetary stimulus seems unlikely however considering Chinese economic news-flow has increasingly improved relative to analysts’ forecasts since mid-May. Furthermore, a survey of economists polled by Bloomberg recently revealed an upgrade in the baseline 2014 Chinese GDP growth outlook (from 7.3 to 7.4 percent), marking the first improvement in four months. On balance, that suggests today’s inflation figures did little to disrupt investors’ priced-in oulook, offering no impetus for currency market volatility.

USD/CNH [30 mins – 07/09/2014]. Chart created using FXCM Marketscope.