Aussie Weakens On China Data, Yen Mildly Lower

The Aussie and Kiwi weakened as the week started in response to a batch of weak economic data from China released over the weekend. In May, the CPI moderated unexpectedly to 2.1% yoy in May, down from 2.4% yoy and versus expectation of 2.5% yoy. The PPI dropped to -2.9% yoy, down from -2.6% yoy versus expectation of -2.5% yoy. Industrial production slowed to 9.2% yoy versus expectation of 9.4%. Fixed asset investment slowed to 20.4% ytd/y. New yuan loans dropped to 667.4b. Retail sales, though, rose 12.9% yoy , inline with expectations. The AUD/USD dropped through last week's low of 0.9428, and the NZD/USD broke last week's low of 0.7858, extending the recent down trend.

The Yen weakened mildly today as the BoJ is due to kick off a two-day meeting. Japan's Q1 GDP was revised higher to 1.0% qoq, while the GDP deflator was also revised higher to -1.1% yoy. The annualized growth rate was revised higher to 4.1%, compared to the preliminary figure of 3.5%. Consumer confidence improved to 45.7 in June. It's believed that BoJ will discuss recent volatility in the bonds and stocks markets. It has been reported that the BoJ will maintain the monetary base expansion target at JPY 60-70T. Nonetheless, the central bank might increase the eligible maturity from one year to two years.

In the eurozone, a German newspaper reported that the ECB set a limit of EUR 524b on the OMT bond purchase program. But it was denied by the central bank: "there are no ex-ante limits of the amount of Outright Monetary Transactions." The ECB emphasized that the size would be "adequate to meet their objectives". The German constitutional court will hold a hearing on the ECB's OMT this Tuesday and Wednesday. Bundesbank Weidmann and ECB Asmussen are expected to testify on the issue. It's expected that the court will not block the program, but that it could lay down some conditions that the OMT must satisfy.

The latest CFTC data showed that on June 4, compared to the prior week, there was further deterioration in Aussie positioning, while the euro and yen positions improved. Euro net shorts dropped sharply to -51.6k, from -84.6k. Yen net shorts dropped sharply to -82.7k, from 2013 low of -99.8k. Sterling net shorts rose slightly to new 2013 low at -77.3k, from -74.5k. The Aussie net shorts rose further to -58.6k, from -42.3k and was the 10th week of deterioration in positioning. The Canadian dollar net short rose slightly back to -39.8k, from -33.4k.

Looking ahead, Swiss unemployment, retail sales and Eurozone Sentix investor confidence will be released in the European session. Canadian housing starts will be featured in May.