China Inflation Softens with Producer Prices in Deflation Territory

It was a relatively busy morning on the economic calendar. Australian business sentiment and consumer confidence figures drew interest this morning. However, inflation numbers out of China influenced market risk sentiment ahead of the US CPI Report on Wednesday.

China’s annual inflation rate softened from 1.0% to 0.7% in March, with consumer prices falling by 0.3% month-on-month. Economists forecast an annual inflation rate of 1.0% and for inflation to rise by 0.2% in March. While the CPI numbers were down, the producer price index figures further eased fears of a near-term build-up in inflationary pressure.

The producer price index declined by 2.5% year-over-year versus a 1.4% fall in February. Economists forecast a 2.5% decline.

Looking at the business and consumer sentiment figures from Australia, the numbers beat forecasts.

The Westpac Consumer Confidence Index surged by 9.4% to 85.8 in April versus a forecasted 1.5% to 79.7. Business sentiment saw a more modest improvement, with the NAB Business Sentiment Index climbing from -4 to -1 in March.

AUD/USD Reaction to China Inflation Numbers

Ahead of the business and consumer sentiment and China inflation figures, the AUD/USD rose to a pre-stat high of $0.66574 before falling to a low of $0.66435.

However, in response to the stats, the AUD/USD fell to a low of $0.66432 before rising to a high of $0.66572.

This morning, the Aussie was up 0.18% to $0.66526.

The Asian equity market also responded favorably to the stats, with the ASX 200 up 1.37% and the Hang Seng Index gaining 1.16%.

Next Up

It is a quiet Tuesday session, with no US economic indicators to guide the afternoon session. The lack of stats will leave Fed chatter and geopolitics to impact market risk sentiment ahead of tomorrow’s US CPI Report and FOMC meeting minutes.

On Friday, the US Job Report fueled bets of a 25-basis point interest rate hike in May. A hotter-than-expected US CPI Report would cement a 25-basis point rate hike. However, another Fed move would reignite fears of a US recession and global liquidity crunch, a bearish outcome for riskier assets.