The first event of note for the session was the very strong Japanese economic growth data for Q2. Q2 preliminary GDP came in much better than expected at 6% annualized, surging past the 3% forecast on strong net exports, led by auto shipments and inbound travellers. On the disappointing side though, domestic consumption and business spending missed estimates. The 6% growth on a y/y basis was the fastest pace since Q4 2020.

Also in the figures were inflation indications. The Deflator is a measure of inflation and it jumped to +3.4%, its highest since Q1 of way back in 1981. As we’ve heard time and again from the Bank of Japan, they expect inflation to be transitory. How much longer can they go on saying this though?

USD/JPY has not done a real lot on the session, tracking a narrow range, for it, around 145.50.

While the Japanese data was a surprise, there were more to come.

The People’s Bank of China cut rates for the second time in three months, lopping the Medium-term Lending Facility (MLF) rate to 2.5% from its prior 2.65% and the reverse repo rate from 1.9% to 1.8%. These cuts were soon followed by Chinese ‘economic activity’ data for July, which came in at big misses for industrial output and retail sales. The youth unemployment rate … well, no one knows, Chinese authorities say they are no longer publishing this particular data. This will not be because its improving.

USD/CNY and USD/CNH both rocketed higher after the PBOC rate cuts. Chinese State Banks were seen in the market selling USD/yuan in an intervention to prop up the local currency.

In amongst all this were the minutes of the Reserve Bank of Australia August meeting, when the Bank left the cash rate on hold. The RBA struck a less hawkish tone than was expected. Also in the mix were wages data for Q2 from Australia, which came in lower than expected. The RBA will read this as taking some heat out of inflation pressure.

AUD/USD was marked lower on this combination of Chinese rate cuts, a gentler RBA, and the miss on wages. As I post, though, it has recovered all lost ground and is just a touch higher on the session.

Elsewhere FX ranges have also been subdued. Chinese mainland and Hong Kong stocks are a little weaker.

Asian equity markets:

  • Japan’s Nikkei 225 +0.8%

  • China’s Shanghai Composite -0.03%

  • Hong Kong’s Hang Seng -0.6%

  • South Korea’s KOSPI -0.8%

  • Australia’s S&P/ASX 200 +0.7%

usdcnh wrap chart intervention china 15 August 2023