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    Asian Session – Strong Chinese data fails to lift shares; Dollar eyes Yellen testimony

    The dollar was mostly flat in Asian trading having steadied after Tuesday’s disappointing retail sales data. Focus has now shifted to Fed Chair Janet Yellen’s semi-annual testimony to Congress. Markets will be looking for further clues on the Fed’s rate outlook as mixed US data continues to put a September rate rise in doubt despite strong indications by the Fed of a rate increase at some point this year.

    Stronger-than-expected GDP data in China did little to boost Chinese equities after second quarter growth came in at 7.0%, versus estimates of 6.8%. While some analysts doubt the reliability of the data, there were more positive signs from industrial production and retail sales data. Industrial production was up by 6.8% year-on-year in June, above estimates of 6.0%. Retail sales were also above estimates at 10.6%, versus forecast of 10.2%. More importantly, fixed-asset investment rose from the previous month and came in above expectations at 11.4% annually. Chinese stocks were unimpressed with the data as they were down by over 3% in late Asian trading.

    The yen was broadly steady after the Bank of Japan cut its inflation and growth outlook for 2015-2017. Inflation forecast for 2015 was lowered to 0.7% from 0.8%, while GDP forecast was lowered from 2.0% to 1.7%. The Bank kept monetary policy unchanged as expected and despite the lower forecasts, economists are split whether there will be further easing of monetary policy later this year.

    The dollar was mixed against major currencies in Asian session as it rose against the yen to 123.48 and the Canadian dollar to 1.2748. The Canadian dollar was under pressure on speculation the Bank of Canada might cut interest rates when it meets later today. The euro was hovering around the 1.10 handle for much of the session and was last trading at 1.0994. The pound managed to hold on to much of its gains against the dollar at 1.5657. It was also stronger against the euro with the single currency dropping to a 2.5-week low of 0.7021.

    Meanwhile, the aussie extended its gains against the dollar to 0.7471 on the strong data from China. But the kiwi had less support and was trading lower at 0.6698.

    There will be two key events investors will be keeping their eyes on later in the day. Yellen’s testimony in Congress will likely set the tone for the dollar but the euro could see some volatility if the Greek parliament votes to reject the latest bailout measures.

    In terms of data, it will be a busy day as UK unemployment and earnings figures are out. The US will see a host of data with industrial production, producer prices, capacity utilisation and Empire State Manufacturing index all due today. Finally, the Bank of Canada will hold its scheduled rate setting meeting.

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