Australia, NZ dollars toppled by China data shock

THE Australian and New Zealand dollars suffered a fresh setback on Monday (May 16) when stunningly weak economic data out of China stoked fears of a global recession, undermining risk assets and commodities.

Chinese retail sales sank 11.1 per cent in April from a year earlier, far beyond forecasts of a 6.1 per cent drop and testimony to how tough coronavirus lockdowns have been there.

Industrial output also fell a steep 2.9 per cent on the year, in a grim omen for resource demand.

The Asian giant is Australia’s biggest export market and the Aussie is often used as a liquid proxy for the yuan.

The data offset news Shanghai authorities were aiming to reopen and allow normal life to resume from Jun 1.

The Aussie duly retreated 0.6 per cent to US$0.6896, away from a top of US$0.6960 earlier in the day and unwinding much of the bounce it managed on Friday. That risks a retest of last week’s 2-year trough of US$0.6829 and a decline to at least US$0.6777, a technical bear target.

The kiwi lost 0.7 per cent to US$0.6240, erasing Friday’s rally to US$0.6290. Chart support lies at the recent low of US$0.6219 and the psychological US$0.6000 bulwark.

The deepening slowdown in China will be a worry for the Reserve Bank of Australia (RBA) as it ponders whether, and by how much, to raise the 0.35 per cent cash rate in June.

The market is still priced for a hike to 0.60 per cent, but has scaled back wagers on a move of 40 or 50 basis points.

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Futures also imply rates around 2.75 per cent by the end of the year rather than 3 per cent, though that would still be one of the most aggressive tightening cycles on record.

Minutes of the RBA’s May policy meeting due on Tuesday could offer more detail on what the Board was thinking on the pace of hikes and the eventual end point for rates.

Wednesday sees the release of wages figures for the first quarter where annual growth is seen picking up to a 7-year high around 2.5 per cent, supporting the RBA’s contention that a tight labour market was finally lifting pay.

Jobs data for May on Thursday should confirm just how tight the market is with unemployment forecast to fall under 4 per cent for the first time since the early 1970s.

“An upward wage surprise would show pressures being more prevalent than the RBA thought in May, increasing the risk of a supersized 40-50bp rate hike in June,” said analysts at NAB.

“Our 0.7 per cent q/q wages forecast is broadly in line with the RBA’s and is consistent with a 25bp move.” REUTERS