Quiet until China GDP, Sell AUD/CAD?

With Europe closed and North American comatose, the outlook is quiet until China delivers key data on Q4 GDP, Dec retail sales and Dec industrial output. Key is Q4 GDP, expected at 8.7% y/y. Given the unexpectedly low imports in last week’s trade data, I see an upside bias.

A large portion of the market is expecting a cut to the required reserve ratio (RRR) before the Jan. 23 Lunar New Year but with time dwindling and talk of inflation, I think it’s unlikely.

That leaves us in a place where a rate cut is less likely but growth is strong. The knee-jerk reaction is to buy commodity FX on the GDP numbers but AUD is most likely to sag if no RRR cuts are announced soon. The Bank of Canada may be more bullish than anticipated on Tuesday as well, setting up a nice AUD/CAD short to 1.0420.

The hourly chart shows a head and shoulders pattern, confirmed on a break of 1.05.