AUD/USD keeps losses as China data shows continued deflation in factory-gate prices

• AUD/USD keeps losses as China's PPI registers a bigger-than-expected drop. 
• Sustained deflation in factory-gate prices is bad news for commodity dollars and risk assets. 
• The rising number of coronavirus cases keep risky assets under pressure. 

AUD/USD remains on the defensive following the release of the China data, which showed continued deflation in factory-gate prices. 

The pair is trading near 0.6975 at press time, representing a 0.10% decline on the day, having printed a high of 0.6995 early Thursday. 

PPI deflation

China's producer price index (PPI), which measures costs for goods at the factory gate fell by 3.7% year-on-year in June, missing expectations for a rise to -3.2% from May’s reading of -3.7%. Meanwhile, China's consumer price index (CPI), a main gauge of inflation, also declined by 0.1% month-on-month in June, missing the expected rise to 0% from -0.8%. 

Continued deflation in factory-gate prices is bearish news for commodity dollars like the AUD and NZD. The data could also weigh over the global equity markets, triggering a flight to safety. That in turn would add to bearish pressures around the Aussie dollar. At press time, the futures tied to the S&P 500 are reporting a 0.11% drop. 

Indeed, weak inflation will provide Beijing with more space to implement policy stimulus. As such, equities may pick up a bid, pushing the AUD higher. However, gains will likely be muted or short-lived, as the number of coronavirus cases in Australia, the US, and other parts of the world is again rising. The number of new cases in the US rose by 60,000 on Wednesday. Meanwhile, as per the latest reports, the Australian state of Victoria has extended lockdown restrictions. 

In addition, fears that the Reserve Bank of Australia may talk down the AUD could keep the Aussie bulls at bay. The AUD/USD pair has rallied by 1500 pips over the past 3.5 months. 

Technical levels