Aussie Lower On CPI And China PMI

Aussie edged higher earlier today but quickly reversed after Australia inflation and China manufacturing data. CPI unexpectedly slowed to 2.4% yoy in Q2 versus expectation of 2.5% yoy. The RBA trimmed mean slowed to 2.2% yoy, RBA weighted mean accelerated to 2.6% yoy. The headline figure is staying firmly in middle of RBA's target range of 2-3%. And the unexpected declaration gives greenlight for RBA to cut rates again in Q3. August is a close call but the chance for a September cut is getting higher. Nonetheless, some economists expected that the next 25bps to 2.50%, from current 2.75%, would be the last in the current cycle and RBA would then keep rates unchanged for around a year.

Another factor that's weighing on the Aussie is the disappointing data from China. The HSBC manufacturing PMI dropped to 47.7 in July comparing to expectation of 48.5. The data suggested that the manufacturing sector is undergoing a deeper contraction. China premier Li Keqiang pledged earlier this week to maintain growth above 7%. However, it's generally expected that the chance for another round of mega stimulus is low as the government is cautious on controlling the property market bubble. It's getting more challenging for China to achieve the 7.5% growth target for this year.

Japan recorded a trade deficit of JPY -0.6T in June, slightly wider than expectation. Exports growth slowed to 1.1% mom and 7.4% yoy. Import growth slowed -1.7% mom but accelerated to 11.8% yoy. Overall, it's viewed as a positive set of data as exports rose for the eight consecutive months, the longest streak since 2009. Meanwhile, outlook for imports also supports that domestic demand is being supported by Abenomics.

Release from New Zealand, trade surplus widened to NZD 414m in June, wider than expectation of NZD 105m. Exports dropped -3.9% yoy while imports dropped even further by -7.4%. RBNZ will announce rate decision tomorrow and is expected to keep rates unchanged at 2.50%. Also, the RBNZ is expected to keep rates unchanged for the rest of 2013.

Looking ahead, Eurozone PMIs will be the main focus in European session. US new home sales will be featured in US session.