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Chinese Inflation Eases Fueling a Rebound in Risk

Last updated 10/14/2011 2:29 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Chinese inflation data moderated in September easing concerns about further PBOC tightening and helping to lift risk currencies in late Asian session trade.  Chinese CPI printed at 6.1% versus 6.2% expected while the PPI data  was also cooler at 6.5% versus 7.0% eyed.

Both readings were below the yearly highs and declined for the second month in a row suggesting that price pressure in the world’s thirds largest economy may have peaked. Looking underneath the headlines, the data showed that food price continued to rise at 13.4% rate while non food items declined slightly to 2.9% from 3.0% the month prior.  

The rise in food costs remains a troubling problem for Chinese monetary policy makers, but unless the rate of change in price levels begin to accelerate, market analysts expect that the PBOC will not tight monetary policy any further leaving both the Reserve requirement Ratio and  the interest rate on hold. However, so far the improvement in inflation data is moderate and therefore is unlikely to generate any easing steps from the PBOC before the year end.

The news provided some relief for the currency market and high beta FX which tumbled lowered on earlier news that S&P downgraded Spain, recovered all of its losses by the time of European session open. The Aussie especially saw a better bid tone as London came on line with the pair breaking above yesterday’s highs of 1.0230 as risk appetite revived. With little economic data on the docket until North American  open trading in FX is likely to be driven by equity market flows as well as any fresh developments form the G-20 summit in Paris.  After yesterday’s correction demand for risk appears to be back in vogue and unless the markets are hit    by fresh exogenous shocks, both EUR/USD and AUD/USD should climb  higher as the day proceeds targeting 1.3850 and 1.0250 respectively.  

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.