Last night before going to bed I checked the economic calendar for today. I saw that the inflation numbers were scheduled to be released early in the morning and I was wondering what impact it would have on the Australian Dollar. Do you remember the last market update yesterday when we talked about correlation in the forex market? Well, the Chinese economy and the Australian Dollar are closely correlated. 

So, this morning I woke up to see that both the inflation indicators beat the expectations. The consumer inflation CPI (consumer price index) data posted a 1.8% increase against 1.7% expected. The producer inflation declined by 1.7% which is lower than 2% expected. This means that the goods are being sold at higher prices by the Chinese manufacturers and wholesalers while the raw materials are being bought at cheaper prices. 

This is positive for the Chinese economy because the increased profit margin of the producers means more investment and more demand for labour, which later translates into higher wages and so on. But the decline in the raw materials that the producers have to pay is not a good news for the Australian economy, because it is very dependent on exports of raw materials to China. AUD had a 40 tumble after the Chinese inflation data was released.