Forex drivers: Chinese data sets the tone for the commodity currencies

US non-farm payrolls rose by 175k, slightly beating market expectations and suggesting the labour market recovery is intact.

The China activity and inflation data for May confirmed slowing growth momentum.

CPI and PPI inflation were also both considerably weaker than expected.

"Indeed, PPI inflation has been negative for 15 months, as industrial prices fall. Given two consecutive weak data outturns, ANZ’s China economists have

revised down their expectations for China GDP growth to 7.6 percent this year, and 7.8 percent next (both down 0.2 percent). They also believe that a 25bps cut to interest rates by the PBOC could be imminent, partly in order to circumvent further appreciation of the renminbi," says Natalie Denne at ANZ Research.

"Fixed asset investment continues to slow (albeit remaining a hefty 20.4 percent y/y), while industrial production also moderated by more than expected. New loan growth slowed markedly, and M2 money supply growth continues to slow. The China train is hardly derailing, but it does seem to be running out of puff somewhat for the moment.

Snapshot of Chinese data releases

Chinese trade surplus rose more than expected in May

Trade surplus in China stood at $20.4 billion in May, compared to a trade surplus of $18.6 billion recorded in the previous month. Market had expected the trade balance to record a surplus of $19.3 billion in May. Moreover, on a year-on-year basis, the exports rose 1.0% in May, following a 14.7% rise recorded in April. Additionally, imports fell 0.3% in May, compared to a 16.8% rise recorded in April.

China’s consumer prices declined more than expected in May

On a month-on-month basis, Consumer Price Index (CPI) declined 0.6% in May, compared to a 0.2% rise recorded in April. Market had expected the CPI to decline 0.2% in May. On a year-on-year basis, CPI rose 2.1% in May, compared to a 2.4% rise recorded in the previous month. Meanwhile, on a year-on-year basis, Producer Price Index (PPI) fell 2.9% in May, compared to a decline of 2.6% recorded in the previous month.

China’s industrial production rose less than expected in May

On a year-on-year basis, Industrial Production in China rose 9.2% in May, following a rise of 9.3% recorded in the precious month. Market had expected the industrial production to rise 9.3% in May.

China’s retail sales rose inline with expectations in May

On a year-on-year basis, Retail Sales in China rose 12.9% in May, inline with market expectations and compared to a rise of 12.8% recorded in April.

China’s new Yaun loans fell in May

Chinese financial institutions issued CNY 667.4 billion worth of new-Yuan loans in May, less than CNY 792.9 billion of loans issued in April, and compared to market expectations of a rise to CNY 815.0 billion in May.