Australian dollar ticks up on China CPI and PPI. Where to for AUD/USD?

The Australian dollar tried to nudge higher as Chinese CPI came in at 0.9% year-over-year to the end of February as forecast and the same as January’s print. PPI came in at 8.8%, instead of 8.6% forecast and 9.1% previously.

Prices paid at the factory gate are still far outstripping prices paid at the cash registers. Businesses are left with a conundrum as they grapple to either pass on the increase in costs to consumers or absorb a lower profit margin.

In other parts of the world, high PPI readings have wound up in higher CPI. We have not seen this yet in China.

Today’s inflation numbers come on the back of a better-than expected trade surplus seen on Monday of US$ 116 billion for February.

A long-term stimulatory boost came overnight from the People’s Bank of China (PBOC) announcement that they would transfer 1 trillion Chinese Yuan (US$ 158.3 billion) to the finance ministry. It is anticipated the funds will be used in a variety of measures to underpin the economy.

China’s President Xi Jinping continues the “shared prosperity” agenda. The preferred sectors of home-grown sophisticated technologies, sustainable growth and equality of income, have seen an up lift at a time when the broader market continues to come under pressure.

While the concept of growth at any cost has been reigned in, affordable housing continues to be a focus and broader economic conditions has seen demand for raw materials remain robust.

This has seen iron ore prices in the futures market make a full recovery from their November lows with the Dalian Commodities Exchange (DCE) and Singapore Exchange (SGX) contracts up around 62% and 80% respectively.

This is indicative of the surge for commodities across the board and has helped to provide a positive backdrop for the Australian dollar. However, the elevated volatility across markets means that wild swings are likely, as illustrated by the trading halt in nickel overnight.

The Australian dollar has seen a ferocious start to week, climbing to a high of 0.7441 before retreating to a low of 0.7245 last night.

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