China's "Data Explosion" in August Exceeds Expectations, Solidifying the View That the World's Second Largest Economy is Stabilizing
A brief look at the data shows that retail sales and industrial output increased by 4.6% and 4.5% respectively compared to the same period last year, far exceeding the market's expectations for a full-year increase of 3% and 3.9%. Urban fixed asset investment was slightly below expectations, expanding by 3.2% in the first eight months of this year compared to the same period last year, one-tenth lower than expected.
The improvement in retail sales and industrial production is the result of a series of fiscal and monetary support measures taken by Chinese policymakers. The latest measures include lowering the required reserve ratio (RRR) for banks by 25 basis points and reducing the 14-day reverse repo rate of the People's Bank of China by 20 basis points, which will release funds for lending to the real economy, while also helping to reduce banks' short-term wholesale borrowing costs.
The Break in the Uptrend of USD/CNH Appears to be Stabilizing
After the data was released, the Chinese yuan strengthened against the US dollar (USD/CNH), re-testing the support level around 7.2700, solidifying the uptrend break that occurred last Wednesday. This suggests that this currency pair may go through a consolidation period.
As Sentiment Towards China Improves, the Australian Dollar Rises Against the Japanese Yen (AUD/JPY)
As sentiment towards China improves, the exchange rate of the Australian dollar against the Japanese yen (AUD/JPY) is on the rise. For many traders, the Australian dollar is often regarded as an investment choice related to the economic situation in China. Hence, it is also rising against most other currencies, including the yen.
The AUD/JPY is currently in an uptrend, performing quite well in a relatively tough macroeconomic environment. Historically, the Australian dollar has been seen as a representation of global investors' risk appetite, so many long-time market participants might expect it to face more pressure. However, the situation is not as expected, as the daily chart shows. Its trend is strong, fueled by the release of the data, with an especially strong performance on Friday.
The exchange rate continues to rebound on the uptrend support line, having broken through resistance that limited gains since June, pushing to multi-week highs today. While some may now be willing to establish long positions, retracing to the uptrend support line while setting stop-losses can improve the risk-reward ratio of the trade.
