Chinese inflation data is set for release as the Asian markets open early on Friday morning, and could spark some considerable volatility in the currencies of those economies linked to the nation. Here’s what you need to know.
First, let’s take a look at the releases. Three pieces of data are set for simultaneous release. The first in the Chinese consumer price index (CPI) (YoY), forecast at 2.5% versus a previous release of 2.0%. Out of the three, this is the headline figure. A downside miss, i.e. a release below 2.5%, would compound fears of an economic slowdown and, in the short term at least, could put pressure one the Australian dollar. Australia relies on China for a large portion of its export income, and any hint that manufacturing may slow down in China will fuel speculation that Australian employment, and in turn output, may suffer. On the other hand, some analysts suggest that the Chinese government may embark on an expansion of its stimulus package. Disappointing headline inflation data would be just the sort of release that could catalyze such an expansion, and with the package likely comprising mainly structural expansion, it could have a positive impact on the Australian export sector. In the medium to long term therefore, this could boost the Australian dollar.
The second release is the MoM version of the aforementioned CPI data. While not quite as impactful as the longer term figure, a miss could still potentially move markets. Consensus forecasts the data at -0.5%, a decline on the previous release of 0.5%. Any impact would be similar, and for similar reasons, as those mentioned above.
Finally, the third release is the Chinese producer price index (PPI) (YoY) figure. The PPI represents the change in prices of goods sold by manufacturers, and so serves as a leading indicator of the more closely observed CPI data. The figure is forecast at -2.2% versus a previous release of 2.0%, suggesting that there may be a decline in the CPI releases during the coming months.
To contact the reporter of this story; Samuel Rae at Samuel@forexminute.com