FX Daily Strategist: Europe

China’s economy grew by 7.8% y/y in Q3, its fastest pace this year and in line with expectations. The key significance of this reading would be to put the economy firmly on the path of meeting the official 7.5% target for the year. Our BNP Paribas economists forecast 7.6% y/y in Q4 producing a 2013 total of 7.7%. Just several months ago many in the markets were fearful that Chinese growth would slow from its H1 pace – a major rationale behind the bearish consensus for G10 commodity bloc currencies. With the combination of the fading US fiscal risk and dovish Fed expectations supporting risk sentiment, commodity currencies are trading with a positive tone. We expect further gains in AUDUSD and AUDJPY, targeting 0.98 and 104 by end Q4, respectively. In Canada, we are not looking for any major surprises from today’s September CPI report. Headline inflation should be steady at 1.1% y/y, while core CPI should accelerate to 1.4% y/y, still well below the BoC’s target midpoint. A strong pro-risk backdrop could push USDCAD towards the September low of 1.0225.