The New Zealand’s dollar has been the strongest currency during the Asian trade as the session lacked any major impact event. The data from China could be a cause for concern but has been broadly ignored by the markets. 

Auto sales in China declined in May in y/y terms for the second straight month. It’s the first such situation since 2015 but tax issues are the key here. In 2016 the Beijing slashed sales tax from 10 to 5% to prop up demand and caused a sharp increase in auto demand. However, as the tax rate inched up to 7.5% at the beginning of this year, auto sales stagnated. In fact in y/y terms the biggest declines may yet to come as the second half of the year will see a massive base effect. That will have an impact on growth and keep in mind that all the major Chinese stats are reported in the y/y terms. It also underscores how relevant the stimulus in 2016 was to take the Chinese economy away from the cliff.

China auto sales collapsed as a tax incentive was partly removed. Source: JP Morgan 

Despite these warning signs commodity currencies like NZD, AUD oraz CAD are doing very well today. The NZDUSD has been the strongest as investors prepare for the Q1 GDP data (Wednesday night BST or Thursday Asian trade). NZDUSD keeps storming higher off the 2017 low and is still nearly 150 below this year’s highs of 0.7370.

NZDUSD has been in a very persistent trend. Retests of moving averages (ranging from 50 to 150 on H1) provided good opportunities to join the trend. Source: xStation5 

We see a continuation of yesterday’s gain on the CAD. The USDCAD broke through 1.33 and keeps declining after a senior BoC governor hinted at a possibile interest rate hike in the near future (analysis here).    

Equity markets are in good moods as well. China is at +0.3-0.5% and while Japan is around break even, Australia sees gains in excess of 1.5%. This could buoy European bourses at the opening on Tuesday.