FX comment – Risk sentiment improves slightly after China’s Q2 GDP was stronger than expected

by: Roy Teo

 

 

  • China’s economy grew 7% yoy in Q2, beating market expectations of 6.8%
  • Risk sentiment in currency markets improved slightly

 

China’s economy grew 7% yoy in Q2 against market expectations of 6.8%

China’s economy maintained its 7% yoy growth momentum in the second quarter as retail sales and industrial production rebounded in June. This was stronger than market expectations that the economy will slow to 6.8% yoy. Earlier this week, Premier Li stated that they will continue their proactive fiscal policy measures and monetary policy will remain prudent. Separately, the People’s Bank of China also reiterated that they will continue to keep the yuan rate stable and continue to promote interest rate liberalization and yuan exchange rate reforms. In addition, overseas central banks will also be allowed to invest in the interbank market.

 

Risk sentiment in currency markets improved slightly

This morning’s better than expected economic print from China supported risk sentiment in currency markets. Asian and commodity related currencies strengthened while the Japanese yen extended its slide. We do not think that price action in currency markets will be large as investors are likely to keep positions small ahead of Fed Chair Yellen’s semi-annual testimony speech later tonight. In addition, the Greek parliament is also due to vote and pass legislations that is necessary to access bailout funds from creditors.