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Chinese GDP

China will announce its first read of Q2 GDP at 10am this morning, local time. The market consensus is pegging the number at 6.8%, a decline from the Q1 report of 7%. If, indeed expectations are met, this could signal China’s continuing economic deceleration and its first quarterly GDP reading below the 7% level since 2009. Anticipating how equity markets there will react to a ‘weak’ number may prove tricky, however, as it could mean a more aggressive push for further interest rates and RRR cuts. The central bank in China continues to enjoy the privilege of room to manoeuvre rates down a lot more. At 4.85% they are nowhere near the vicinity of the ‘zero-rate baseline’ most other major central banks find themselves handicapped by. The Chinese authorities also displayed their will to act decisively when they moved recently to cut both key lending and RRR rates at the same time; desperate measures according to critics, but nonetheless within their discretion. With the recent volatility we have seen over the Chinese stock market collapse - the ‘great margin unwind’ - there is still very much ‘work in progress’. Hence trading Chinese equities or indices around this number (GDP) may be a little more delicate. Instead, the best product to venture into for a trade behind this report may be the aussie-dollar. Just as the Chinese trade data on Monday offered movement on the aussie-dollar of decent range, the aussie-dollar could feature again later this morning. With the pair currently settled around the first support of 0.74, any expectations not met would most certainly bring about either a deeper breakdown or a bounce off this key psychological level.
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