It's a huge week for the Australian dollar

It has been a pretty quiet start to the week for the Australian dollar but that may change tomorrow with the release of potential headline making economic data out of China and the RBA’s minutes from its policy meeting earlier this month. This will be followed by the release of more important economic data from China, the US and Australia, all of which have the potential to play havoc with the AUD.

China’s growth figures

Perhaps the most anticipated release, at least for those of us in Asia, is China’s Q3 GDP numbers. The economy is expected to have expanded around 7.2% y/y, after a 7.5% growth rate in Q2, and 7.4% YTD y/y. This is clearly below the government’s official growth target of 7.5%, although Beijing has stated recently that it would accept growth slightly below this level.

The Australian dollar can react very interestingly to Chinese economic data. It can go either way if data is worse than expected, or better than expected for that matter. Sometimes the market takes worse than expected data to mean that Beijing will ease policy further, which is AUD positive. Other times, investors take Chinese economic data at face value. The reverse is true for better than expected economic numbers.

This time around we think the AUD may rally if Tuesday’s GDP figures are worse than expected as it may prompt more stimulus from Beijing, which has the scope to ease policy further at this stage (it may even see the PBOC cut the RRR). In the event of mildly better than expected data, we may only see a slight reaction from the aussie, but we think this also may be to the upside, although that is purely speculation. (For a full preview of tomorrow’s GDP figures see - China GDP preview: Q3 was a tough quarter).

There is also a slew of other economic data out of China

On Tuesday we’re expecting industrial production, retail sales and fixed asset investment figures for September. Industrial production is expected to increase 7.5% y/y, after increasing a disappointing 6.9% y/y in August. Retail sales and fixed asset investment are anticipated to jump 11.7% y/y and 16.3% YTD y/y. Later in the week, HSBC’s October Preliminary PMI is expected to remain steady at 50.2.

Australia’s big week

The RBA’s meeting minutes aren’t expected to yield any major surprises. The RBA’s policy meeting seem to pan out exactly as we expected it would, with the bank noting the recent fall in the Australian dollar, while reiterating that it remains too high, and the hot property market. The predictable nature of the meeting kept the aussie from shifting too far in either direction as the announcement came. Nonetheless, a rouge comment about the AUD tomorrow always has the ability to move the commodity currency.

On Wednesday we are expecting Australia’s inflation numbers for last quarter. Consumer prices are expected to increase 0.4% q/q, bringing year-on-year inflation to 2.3% from 3.0% previously. This is within the RBA’s target 2-3% range, although it’s a big drop. However, it shouldn’t be serve enough to change the RBA’s policy stance.

Given the volatility in the FX market at the moment, any big data misses this week may have big implications for the AUD. Weaker than expected Chinese economic data doesn’t bode well for Australia’s export market and softer than expected inflation numbers cast doubt over the effectiveness of the current stance of monetary policy to sufficiently support the economy. Both of these cases may result in a sell-off in AUD, while the opposite scenarios (i.e. better than expected figures) may support the Australian dollar.