Trouble in China Tugs on AUD

Soft Chinese economic data released on the weekend sent the Australian dollar lower in early trading. The highlight on the calendar is Japanese machine tool orders. Weekly positioning data from the CFTC show a rush into the US dollar.4 trades in USDJPY, 1 EURUSD, 2 AUDUSD, 2 USDCAD, 2 EURJPY, 1 gold, 1 Crude oil are in progress. See all 13 trades & those awaiting fill in the latest Premium Insights

A series of data points showing slower growth and rising inflation muddy the monetary policy waters. The main concern is inflation, which rose to a 10-month high of 3.2% compared to 3.0% expected.

At the same time, industrial production and retail sales fell well short of expectations. The combination leaves policymakers little wiggle room if they want to further stimulate the economy. It could even mean action to slow the economy and curb price pressures.

One caveat is the effects of Golden Week holidays, which occurred in February. The year-over-year comparisons may have been skewed because in 2012 the holiday occurred in January.

The early effect on the market was a slump in the Australian dollar, which fell to 1.0211 from the 1.0236 close on Friday. The kiwi is also slightly softer while other currencies are basically unchanged.

The risk is that as Europe and North America digest the Chinese data, a larger selloff begins.

The lone risk event on the calendar is January preliminary Japanese machine orders at 2350 GMT. Expectatinos are for a 0.3% y/y decline. Typically, the market doesn't react strongly to this data point.

Another event to watch is a speech from the BOJ's Ishida at 0130 GMT.

Commitments of Traders

EUR net short 26K vs short 9K prior JPY net short 73K vs short 65K prior GBP net short 44K vs short 36K prior AUD net long 7K vs long 26K prior CAD net short 46K vs short 21K prior NZD net long 19K vs long 20K prior CHF net short 11K vs short 8K prior