China data boosts AUDJPY

In a holiday shortened week, the early tone to trading in risk markets is likely to be positively impacted by the release of strong Chinese lending data on Friday evening.

The data showed that Chinese banks extended 1.69 trillion yuan in new yuan loans in March, up from 885.8 billion yuan in February and well above market expectations for 1.2 trillion yuan. Total social financing (TSF), which is a broad measure of credit and liquidity in the economy, including off-balance sheet forms of financing, such as initial public offerings, loans from trust companies and bond sales, quadrupled to 2.86 trillion yuan from 703 billion yuan in February.

The stronger than expected lending numbers will comfort markets after Governor Yi suggested in a press conference during the National People’s Congress, held in early March, that the large swings in the TSF data in January and February were impacted by the Chinese New Year, and that the March loans data would provide a better guide.  

With this in mind, the rebound in the March data seemingly confirms that demand for credit in China has turned higher, likely the result of the better domestic sentiment, driven by the progress being made on U.S.-China trade negotiations, fiscal stimulus measures undertaken by the Chinese authorities as well as reforms that include a profit-boosting cut to the value-added tax (VAT) tax.

It also provides confidence that Q1 China GDP data to be released this Wednesday and currently at a three-decade low is likely to be the low point in Chinese growth for the year. This is reflected in a handful of banks recently upgrading their Chinese growth forecasts for 2019.

One market that has certainly taken the news positively is AUDJPY, which in recent months has been range bound between 79.85 and 77.50. Possibly following the leads of AUDNZD and AUDUSD, AUDJPY broke higher on Friday night and from a chart perspective has the potential to build on gains.

Traders may consider buying dips in AUDJPY back towards the breakout zone 80.00ish with stops placed below 79.00 to protect against the possibility of a false break. The initial target for the trade is 82.00 and should risk markets continue to rally, there is room for the up move to extend towards the medium-term resistance zone 84.00 area.

Source Tradingview. The figures stated are as of the 15th of April 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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