AUD/JPY hovers around Dec 2016 low of 83.74, is China reflation story nearing an end?

The AUD/JPY cross is hovering around 83.74 (Dec 2016 low) ahead of the China PPI release, which could show the wheels are coming off the ‘global reflation’ wagon.

The China Producer Price Index (PPI), also known as the factory-gate prices, is seen moderating to 6.9% y/y in April from 7.6% in March.

End of reflation story

China PPI bottomed out in July and August 2016 and surged to the highest in nearly 9 years in February. Trumpflation was merely an icing on the cake. As for now, The Trump bump stands exhausted.

Meanwhile, China’s crackdown on the leverage over the last month or so means the credit impulse (change in new credit issued as a percentage of the gross domestic product) may have dropped.  That may reduce the demand for the commodities (less imports from China) and therefore less inflation is exported to the global economy.

Thus, a weaker-than-expected Chinese PPI could destabilize the risky assets and increase demand for the Japanese Yen. On the other hand, a better-than-expected PPI could help the battered Aussie regain poise.

AUD/JPY Technical Levels

A break above 84.02 (Apr 26 high) would open doors for 84.54 (May 2 high). A daily close above the same would signal continuation of the rally from Apr 19 low of 81.49 and could yield 85.19 (61.8% Fib R of 87.49-81.49).

On the downside, break below 83.18 (May 8 low) would open up downside towards 82.68 (May 5 low) and 82.44 (Apr 21 high).