All Eyes on Chinese Industrial Production and Retail Sales | Daily FX Commentary

• Aussie dollar relatively unchanged following housing and business confidence data;
• Moderate gains in Sterling ahead of Bank of England inflation report this evening;
• German investor sentiment records lowest level since 2012 adding to deflation concerns.

Despite some relatively encouraging business confidence and housing data released yesterday, the Aussie has opened this morning little changed against the greenback as local markets prepare for a busy day ahead. NAB business confidence hit a 10-month high in July as executives remain optimistic of the economic outlook. Ironically the data was recorded in the same month the unemployment rate jumped to a 12-year high. In addition, Australian property prices showed no signs of slowing in the second quarter, prices rising over 10% YoY. The day ahead looks to be eventful for the local unit with consumer confidence, Q2 wage inflation, Chinese industrial production and retail sales all on today’s docket. June’s Chinese retail sales read moderately marginally missed estimates, forecasts suggest an uplift in the month of July.

Sterling has managed to bounce from lows in recent trading sessions and appears to be attracting some buyers ahead of the Bank of England’s quarterly inflation report to be revealed this evening. Employment and earnings data, combined with the quarterly report will be the catalyst for Sterling this evening. Weak wage inflation will hold significant influence on the Bank’s decision to adjust policy and we would expect this to be in focus this evening. There is no doubt that data from the UK points towards economic recovery, unemployment has dropped, inflation is approaching target and growth output has improved. However with such slack in wage growth, the UK consumer’s spending power continues to diminish and this is what we’re likely to see some guidance on this evening.

Sentiment in the Eurozone’s heavyweight economy was recorded at the lowest level since 2012, only escalating concerns that the EU will head closer towards deflation. Two surveys of German sentiment were recorded far worse than expected, sentiment of the current economic situation fell to 44.3 in August vs 61.8 in July but the main shock came from Germany’s medium-term outlook of the economy which recorded the sharpest decline in over 2 years. The Euro came under further pressure, as has been the trend for some time now, as such indicators suggest a sustained period of economic weakness for the Eurozone with little sign that tensions with Russia are easing. In the absence of US economic data, the dollar traded within a tight range overnight as markets await US retail sales this evening.

[B]Tom Williams
Currency Analyst[/B]