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The US dollar weakens following healthy Chinese economic data

USD - United States Dollar

The US dollar index is weakening by 0.11 percent this morning after better than expected economic data out of China. The positive Chinese data has given the FX capital markets a risk appetite once again (see key drivers for details).

Locally, the White House is evaluating candidates to substitute Herman Cain and Stephen Moore for the Federal Reserve Board. Larry Kudlow, Director of the National Economic Council, said, “…at the end of the day, it will probably be up to Herman Cain if he wants to stay in that process or not ... as far as we are concerned he is still in the process and it is proceeding.” He also added, “…we are talking to several candidates. We always do.”

The robust Chinese data may wipe out one of the crucial points of advantage for US negotiators in trade talks. See below.

Key Movers

Whenever there is good news from China, risk appetite increases. The strengthening of the Chinese Yuan is also playing on the weakness of the US dollar today. Amongst the abundance of data from China, three key releases include the following:

• China's GDP in the first quarter was better than expected and came in at +6.4 percent versus the +6.3 percent expected. This is the same result as in the fourth quarter of 2018.
• China's industrial production surged to +8.5 percent in February, above the expected + 5.6 percent.
• China's retail sales also improved. They were reported at +8.7 percent, while the expectation was + 8.4 percent. This is above the February increase of + 8.2 percent.

It seems that China’s efforts are paying off; China has been participating in fiscal and monetary stimulus to help protect the economy from a hard landing.

However, the shared currency, the Euro, has had a limited strength following the news from China, mainly due to local catalysts. The ECB officials are ignoring any renewal of their negative interest rate tool and there is some doubt that it will happen. According to Bloomberg, ECB policymakers aren’t opposed to President Mario Draghi’s move to examine the impact of the measure, but many don’t yet see merit in a switch to so-called tiering to relieve some excess reserves from the deposit rate. Technically speaking, the EUR/USD pair has been unable to leave the trading range started on April 12th. Until today, this trading range is between 1.1278 and 1.1323; any breakout from that range can give us a clue on the direction of the most liquid FX pair.

Expected Ranges

USD/CAD: 1.3292 - 1.3355 ▼

EUR/USD: 1.1287 - 1.1321 ▲

GBP/USD: 1.2981 - 1.3075 ▼

AUD/USD: 0.7143 - 0.7209 ▲

NZD/USD: 0.6684 - 0.6740 ▼