SINGAPORE, SINGAPORE--(Marketwired - Jan 20, 2014) - In FXPRIMUS' Market Brief of The Week for 20 January, the brokerage firm's Senior Economist, Jimmy Zhu, China's key data releases and how they are affecting worldwide markets.

Economic Insights

Slightly Lower Chinese GDP in 4Q Suggests That Growth Has Peaked in Near Term

This morning, China just released key data such as its 4Q GDP and December Industrial Production (IP) data. China's 4th Quarter GDP rose 7.7% YoY, 1.8% QoQ; December Industrial Output rose 9.7% YoY; December Retail Sales rose 13.6% YoY; economic growth slowed down slightly, as factory output and investment spending eased in the fourth quarter. It signalled that credit growth might take a hit this year due to the government's determination to curb shadow banking.

China has not released its 2014 growth target yet, and it is likely to be released next month based on past history. We estimate that the GDP target for this year will remain at 7.5%. In other words, the government could be using a gradual pace to reform the economy.

Markets took the releases negatively, as the recent indicators suggested that economy has been fading since middle of the 4Q. It is one of the reasons why the Aussie moved toward the level of 0.85. The employment data adds on further bets that the Reserve Bank of Australia (RBA) could lower its cash rate again during the first half of this year. Last week, Australian payrolls fell by 22,600 in December when consensus was a decent gain. Full-time payrolls recorded a big loss since 1992. The unemployment rate remains high at 5.8%, matching the highest level since June 2009.

Aussie failed to rebound although policy decisions on 5th November and 3rd December last year by the RBA was to "hold the rates", and Glenn Stevens said the exchange rate was "uncomfortably high", which was not so dovish compared to the middle of last year.

However, he jawboned the Aussie dollar lower as he thought the AUDUSD should be close to 0.85.

According to current consensus, here are the top four concerns on reasons that may push the Aussie dollar lower in 2014:

Growth engine in China was lost, especially the demand for the hard commodity from China. It should not be recognized as a positive catalyst for the Aussie dollar.

According to the swap market, there is a 48.6% chance that the RBA benchmark cash target will be lowered by June 2014. So long as easing expectations exist, the Aussie will remain under pressure even if there is no "rate cut" from the RBA.

The Australian economy will probably grow by 2.7% this year, with the expansion accelerating to 3% in 2015. The growth is well below the historical average growth in Australia, prompting the central bank to do more in the coming months.

The U.S. recovery should gradually remove the Federal Reserve (Fed) stimulus, bidding for a stronger USD.

Top news this week

New Zealand: Consumer Price Index (CPI) Q/Q.

I expect figures to come in at 0.3% (previous figure was 0.9%).

HSBC flash China manufacturing Purchasing Managers' Indexes (PMI)

I expect figures to come in at 50.2.

German flash China manufacturing PMI

I expect figures to come in at 54.6.

Trade Recommendation

Long NZDUSD at 0.8220

On the H1 chart, NZDUSD is moving into its key support level at 0.8220. Momentum for the Aussie is still to the downside, hence the crowded AUDNZD shorts could offer some support to the Kiwi's upside. Chinese reform to increase the personal wages also benefits the New Zealand's Dairy exports activities. Additionally, monetary policy for New Zealand is supportive of a stronger Kiwi as the central bank might raise the rates in 1H this year.

We will go long once prices retrace further to our support level at 0.8220. A stop loss of 50 pips is placed. We will have two targets on this trade, exiting the first position at 0.8270 and the second one at 0.8320.

NZDUSD H1 Chart: http://media3.marketwire.com/docs/fxpnzusd0120.jpg.

Source: Bloomberg

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