China Data Leaked

Chinese Data Leak Benefits Aussie, Euro, Sterling

Risk was well bid overnight as world stocks rose to levels not seen in just shy of two and a half years. Apple released strong results and the outlook for the future is rosy given sales of the iPhone and iPad; meanwhile, IBM also impressed by delivering a better-than-expected profit on the quarter. That being said, there were some mixed results out of Goldman Sachs and Wells Fargo, which has contained the elation-driven buoyancy somewhat this morning.
In Asia, there were reports out of Hong Kong that Chinese inflation data, which will be heavily viewed this evening, is slated to come out on expectations. We’ll see if this leak proves to be true, but calming inflation in China is very positive for stocks and risk trades because it means that the government may not have to impose more tightening rules to curb growth and rising price pressures.  The CPI data will be read at 9:00pm EST tonight, and if the levels deviate from the 4.7% expected (or 4.6% leaked), it will likely play a major factor in the night’s—and the rest of the week’s—sentiment.
The leak, combined with the after-the-bell earnings releases, made investors rather bullish, which saw them moving away from the US dollar to invest in emerging markets and equities rather than in bonds. The Australian dollar was one of the biggest winners on the day, cruising through parity with the US and now sitting up roughly 0.6% on the day. The EUR actually gained even more and is up close to 1% as fears over the debt problems have taken a backseat for the time being. The common currency continues to climb and now sits close to 1.35 in interbank trade. Though it is above the top end of its range, more gains could be in store if this mood continues. And finally, in the UK, the pound is struggling to remain above the 1.60 mark. It has traded above this figure a few times in the last couple of days, but seems to be consistently met with decent offers, and now sits just under this important level. Similar to the Canadian dollar (see below), traders are hesitant to push it too much higher after the gains witnessed recently. The crosses might have to catch up to the pound before it can push significantly higher against the USD.
Loonie Left Out of Risk Rally
I’d like to talk a little bit about the Canadian dollar. We highlighted the importance of the Bank of Canada decision yesterday; it is interesting to analyze the price action a day later. As noted, most currencies gained against the Big Dollar overnight due to data and risk preference, but the Canadian dollar has lagged considerably. This is both a follow-through from the less-than-hawkish statement released yesterday and proof that, with this move under par, the market has established a “fair valuation” for the near term. At these levels, there are more attractive buys in the market if you want to short the US dollar, but there is also a pervasive belief that Canada should be strong due to its fiscal situation and generally optimistic outlook.
The Bank did note that currency levels might be a drag on the economy, and this is certainly helping to fuel the anti-CAD sentiment today, but the volatility and interest in the currency has waned, leading us to believe that either new data or relative prices with the crosses must change before we see significant changes. On a more technical note, the USDCAD pair posted a bullish outside reversal today, so if the day’s price ends higher than yesterday’s close, it could signal that more short-term weakness is in store for the CAD. That being said, we do feel the general trend is in place, and any significant devaluations in the Loonie will be met with decent buying interest given the fundamentals in Canada.