Talking Points:

Yen Gains, Aussie Dollar Falls as Soft Chinese News-Flow Sinks Risk Appetite
US Industrial Production, Empire Survey Data to Inform Fed Policy Outlook
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The Japanese Yen outperformed in overnight trade, rising as much as 0.5 percent on average against its leading counterparts, as a drop on Asian stock exchanges drove demand for the safe-haven currency. An MSCI index of regional shares slid 0.7 percent as investors responded to soft Chinese economic data.

Reports released over the weekend showed Industrial Production unexpectedly added just 6.9 percent year-on-year in August, marking weakest print since December 2008. Retail Sales grew 11.9 percent over the same period to post the smallest gain since April.

The Australian Dollar proved weakest on the session, falling as much as 0.4 percent against the majors. China is Australia’s top trading partner and signs of slowdown there undermined the outlook for exports demand, weighing on growth bets and thereby eroding RBA rate hike probabilities. Risk aversion compounded selling pressure facing the sentiment-linked currency. We remain short AUDUSD.

A quiet economic calendar in European trading hours is likely to see investors looking ahead to Augusts’ US Industrial Production reading and September’s Empire Manufacturing gauge. Factory output is expected to rise 0.3 percent, marking a slight slowdown from the prior month, while the Empire index is seen rebounding to 16.00 after hitting a four-month low of 14.69 in August.

The broad trend in US economic news-flow looked decidedly rosy in the weeks leading up to Augusts’ disappointing jobs report, an outcome initially dismissed as a seasonal aberration. If that narrative finds support in upbeat results on today’s outcomes, that may fuel bets on a relatively sooner onset of Federal Reserve rate hikes, amplifying “risk-off” dynamics and pushing the US Dollar higher.

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