China remains stuck in low inflation cycle

FXStreet (Bali) - China's Consumer Price Index (MoM) registered -0.2% in May, below expectations of 0%, while the YoY reading for May came in at 1.2%, which is also below forecasts of 1.3%. Meanwhile, China Producer Price Index (YoY) came in at -4.6% vs forecast of -4.5%.

The inflation outcomes should reinforce the case for further easing by the PBOC. As per the repercussions for the Australian Dollar, on one hand, Chinese stimulus prospects act as a positive input for the Aussie as market participants expect a pick up in demand/consumption.

On the other hand, low inflation is a sign of a slowing economy, unable to spur enough consumption - evidence remains on Monday's poor Chines imports - which should be perceived as having a negative impact on the Aussie.