The delicate balancing act between global growth and inflation is in focus this week with monthly Chinese data due today after last week’s shock producer price reading spooked China-watchers.
Last week, Chinese inflation numbers initially put markets back on edge.
In particular, Chinese producer prices jumped from 4.4% to 6.8% in annual terms over April, sparking fears of an impending inflation surge.
A shock rise in US inflation also unsettled markets last week.
While markets had braced themselves for a higher number, the 4.2% annual rate, well above the 3.6% expected, stunned markets.
The result was a big jump from the 2.6% in the previous month.
The core number, which excludes food and energy, was up 3.0% versus 2.3%.
The US dollar roared higher on the news pushing the NZDUSD to one-month lows last week.
Real world in focus
These inflation scares were calmed at the end of last week after US retail sales sharply missed expectations.
US retail sales in April were flat while the core number dropped 0.8%.
The result unsettled a recent run of outperformance in US – global – retail activity.
The NZDUSD rebounded near the end of the week.
Activity numbers are clearly the major focus this week with stronger numbers potentially provoking further inflation fears.
China industrial production and retail sales numbers are due on Monday.
On Friday, the global purchasing managers’ indexes, the most up-to-date reading of major global economies, will be carefully watched.
Bond, ten-year bond
For the NZD, and FX in Asia more generally, it’s moves in the US ten-year bond yields that will be closely watched.
The NZDUSD has been defined this year by mainly being stuck in a clear range between 0.7100 and 0.7300 for the majority of the 2021.
In the US bond market, a similar range between 1.50% and 1.70% has been formed.
A breakout in US bonds is likely to be the major trigger in NZD – and all major FX markets.
If you’re looking for the next big move in FX – keep an eye on US ten-year bond yields.
By Steven Dooley, APAC Currency Strategist – Western Union Business Solutions. You can contact him here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.