China inflation
China food inflation higher, non-food inflation decelerates on lower fuel prices Reuters

China continues to show weakening price pressures, underpinning expectations of further policy stimulus from the world's second largest economy, helping the Australian dollar stay supported.

China has said the year-over-year consumer price inflation for October was 1.6%, unchanged from September and in line with market expectations. The month-on-month change was nil, when the consensus was for a 0.1% rise, down from 0.5% in the previous month.

Another release showed that factory gate deflation worsened in China. The producer price index fell 2.2% in October, steeper than the September fall of 1.8% and worse than analysts' forecast of a 2.0% drop.

The Chinese yuan, however, strengthened to 6.1137 against the dollar, bouncing back from a two-week low of 6.1230 on Friday, as the weaker than expected non-farm payroll data from the US weighed on the greenback.

Impact of Fuel Price Drop

China's inflation could have accelerated if not for the global fall in oil prices. The food price index, which has one-third weighting in the CPI basket, rose 2.5% in October, driven by higher fruits and eggs prices.

However, decline in fuel prices helped lower the non-food inflation in China, which came at 1.2% in October, offsetting the impact of food inflation.

Aussie Dollar

The Australian dollar strengthened to a five-day high of 0.8683 from 0.8633 at Friday's close also helped by better than expected domestic data.

In September, home loans taken fell 0.7% in Australia, but it was better than the 0.9% fall in the previous month and compared to a market forecast of 1%.

Usually, better Chinese data or prospects of growth stimulus measures in China help the Aussie dollar rally as a good chunk of Australian exports are to China.

US Non-farm Payroll

Negative surprise in the US jobs data on Friday has led to a decline in the overall dollar strength, also helping the gains of the Aussie currency.

The non-farm employment addition in October was 214,000, down from 236,000 in September and against analysts' forecast of a rise to 265,000.

The US unemployment rate, however, has dropped to a six-year low of 5.8% in October, revealing the strength of the labour market of the world's largest economy.

The USD index, the gauge that measures the strength of the greenback against a trade-weighted basket of major currencies, had risen to a new four-year high of 88.18 on Friday before ending lower on the negative surprise in the NFP data.

The index has further dropped on Monday, and traded at 87.33, compared to Friday's close of 87.59.