I'm not sure why I am bothering reporting the Chinese trade data in this article, as the figures must be taken with a few railcars of salt (can exports really have grown 11.6% year-on-year in a world of anaemic growth?).
It is far more likely that the Chinese government is having a hard time clamping down on exports over-reporting, which is a cover for capital flows leaving the country. Viewed in that light, it will be very interesting to see the October FX reserves data for China.
Is the Chinese government playing fast and loose with export data? Photo: iStock
Given that the Chinese yuan is hitting record high levels (based on the broad, real effective exchange rate, which includes the cumulative effects of inflation) while Japan has “achieved” a record low real effective exchange rate, we have incredible tension between Asia’s two biggest powers and the world’s number two and number three economies.
Chinese president Xi Jinping and Japanese prime minister Shinzo Abe met on the sidelines of the Asia-Pacific Economic Cooperation summit today, a major step after all of the recent tension surrounding the Senkaku/Diao Yu islands. There is also a G20 meeting in Brisbane later this week that could produce a statement or two on exchange rates, but whether or not it does, the countdown to a possible Chinese move on the RMB exchange rate may pick up steam following the conference.
Also, another low Consumer Price Index print for October (at 1.6% y-y, matching the lowest) indicates that China's central bank faces pressure to take action and avoid a deflationary trap from its deflating housing bubble.
Looking ahead
We have an interesting week ahead, with critical technical focus on the US dollar as we are so close to key pivot levels in several of the USD pairs (most notably the 1.2500 level in EURUSD).
The USD needs to stay on the strong side of these levels after having staged a major break higher last week. Otherwise, we risk an outright reversal and new range trade rather than an extension of the USD bull market.
I felt the reaction to the US' October employment report was somewhat unfair as October's payrolls growth was the highest in 12 years on a non-seasonally adjusted basis, with only oddly timed statistical adjustments keeping it lower. Regardless, the forward rate expectations for the Federal Reserve were pushed back a few basis points lower as the market view on Fed policy unwinding remains very complacent.
AUDUSD
One interesting USD pair to watch this week — in addition to EURUSD around the 1.2500 level — is AUDUSD around the 0.8650/0.8700 level. Note that this bounce from the new multi-year lows has taken us to a locally interesting 38.2% Fibonacci retracement around 86.84 and, slightly (and uncomfortably) back above the old 0.8642 low.
The bears need to drive this one back lower quickly if we are to avoid a reversal scenario and continue with the downtrend. 
Today, watch for the Norway CPI data, as NOK trades in the key 8.45/8.50 pivot zone with a two-way risk. Norwegian rate developments have been supportive for NOK in recent days, as has the relatively stabilisation in oil prices, but a strong negative surprise on the CPI would probably hit the NOK hard and could set the currency on a path to new lows.
Meanwhile, a higher than expected reading could see fresh NOK buying, eventually setting up a push lower in EURNOK, with the pair heading back into the range and on toward the 8.30 area.
Later this week, the focus will shift to the UK on Wednesday, where a bonanza of event risks including the latest quarterly inflation report and employment and earnings data await. Then, at the tail-end of the week, we will turn to the German October CPI estimate on Thursday and the Eurozone October CPI estimate on Friday.
The lone US data point of interest all week is the October Retail Sales report, which will perhaps be a bit more interesting than usual after September’s disappointment.
The US bond market is closed tomorrow for Veteran’s Day, though the stock market will be open.
Economic Data Highlights
- China Oct. Trade Balance out at $45.41B vs. $42. Expected and $30.9B in Sep.
- China Oct. PPI out at -2.2% YoY vs. -2.0% expected and -1.8% YoY in Sep.
- China Oct. CPI out at +1.6% YoY as expected and vs. +1.6% YoY in Sep.
Upcoming Economic Calendar Highlights (all times GMT)
- Norway Oct. SPI (0900)
- Canada Oct. Housing Starts (1315)
- Euro Zone ECB Announces Covered Bond Purchases (1430)
- Euro Zone ECB’s Mersch to Speak (1800)
- New Zealand RBNZ Deputy Governor Spencer to Speak (2140)
- US Fed’s Rosengren to Speak (2210)
- Japan Sep. Current Account Balance (2350)
- Australia Oct. NAB Business Confidence/Conditions (0030)
- Australia Q3 House Price Index (0030)
- Japan Oct. Consumer Confidence Index (0500)
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