China's GDP a smidge below forecasts but traders wanted excuse to sell assets; improved mood overnight has NZD, equities and commodities up; Fonterra auction better than expected

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Market sentiment has improved, supporting commodity currencies and equity markets.

Yesterday afternoon, China’s data dump was keenly anticipated by markets. The activity data showed a marginally weaker economy compared to expectations. 

Some headlines went with “GDP growth of 6.9% in 2015, the weakest in 25 years”, although this wasn’t really news and the “miss” on the monthly indicators was hardly significant.

Traders initially seemed to look for any excuse to further trim exposure to the commodity currencies and we saw the NZD and AUD fall on the news, to their respective lows for the day of 0.6416 and 0.6839 respectively.

However, that mood didn’t last long and in actual fact the figures were better than some in the market had feared. There was a marked improvement in market sentiment, driving the NZD all the way up to a peak of 0.6514 reached just after midnight.

The improved mood helped support commodity markets, with many showing some signs of recovery, including a rise in Brent oil to $29.20 a barrel, having briefly surpassed the $30 mark overnight.

The S&P500 tracked the move in oil prices and was up 1% at one stage, but that gain has been pared back to just 0.2% now.  European equities were up in the order of 1.5-2%.

When we look at the currency leaderboard, the commodity currencies were the best performing, with the AUD showing the best gain of 1.0% to 0.6932, while the NZD is up 0.6% to 0.6489. 

NZD/AUD fell to a low of 0.9334, but has since recovered a little. The GDT dairy auction overnight wasn’t as bad as feared, with the average price down only 1.4% and whole milk powder and this has helped support the NZD.

GBP had a wild ride overnight, trading in a wide range of 1.4130 to 1.4340. The currency was well bid heading into the CPI release, and that proved to be a good trade, as the data showed stronger core inflation than expected. 

However, BoE head Carney gave his first speech for the year soon after and this was more dovish than expected. He indicated that it wasn’t the right time to be raising rates and inflation would stay lower for longer, given the collapse in oil prices, strong exchange rate and subdued global price pressures. NZDGBP is up 1.0% to 0.4575.

Better market sentiment meant that the Yen was out of favour. USD/JPY reached 118.11 but the move wasn’t sustained and on the day USD/JPY is just 0.1% higher at 117.50. 

EUR was also initially out of favour, but as I write the risk-on sentiment is fading and EUR/USD is now actually up 0.3% to 1.0925.

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