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China Trade Balance: Beyond the AUD

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There is a lot of market expectation on China’s upcoming August trade balance data. Of the majors, the currency most likely to be directly impacted is naturally Australia. But with the world having increasing doubts about China’s economic outlook, there could be other currencies in the spotlight. Especially as worries over global trade weigh even on the more “safe” currencies.

The CAD is another logical currency that could be affected, as China is the world’s largest exporter of crude. Oil prices have been driven by expectations of an unbalance between supply and demand as China’s economy ramps up. Other currencies that could be affected include the yen, as tensions between the two countries heat up over exports. Germany’s recent underperformance can potentially drag on the Euro, seeing as China is the largest trade partner.

The Chinese Trade Situation

China’s trade balance is traditionally seen as a key indicator for global economic health. China is the world’s leading manufacturer, having the highest level of exports and imports. If demand for consumer goods diminishes, then it would be reflected in Chinese exports. In turn, China would import fewer raw materials to meet slowing demand.

That dynamic has been somewhat interrupted of late, due to geopolitical tensions. As companies and countries look to reshore or diversify supply chains, China has been seeing its overall impact on trade decline. Which goes hand-in-hand with the government’s efforts to bolster the domestic economy. But, by no means does that imply that global economic sentiment can’t be gauged with Chinese trade figures, and the market would be expected to react accordingly.

What to look out for

The data is forecasted to follow a similar pattern: China’s surplus is seen increasing, but simply due to imports falling faster than exports. China’s trade balance for August is expected at $81.0B, just slightly above the $80.6B seen in July. But exports are expected to drop 10%, while imports are seen lower by 11%. That would be an improvement from the prior month, relatively speaking, when trade dropped even faster.

Each component has a different implication for global markets. The one that could most impact sentiment is the export figure. If fewer countries are buying from China, it might be a sign that the global economy is fizzling. Recent GDP figures from Europe, Australia and the Far East have been disappointing.

Potential Forex impacts

The imports figure could have a bigger impact on forex markets. Particularly the components, which could weigh more on each currency depending on specific moves. Among things that are expected to be in focus is whether the higher prices of crude through August translated into less imports by China. It has been reported that China has been stockpiling crude, taking advantage of lower prices in the first half of the year. That could come to an end if prices rise.

Australia naturally will be more impacted by steel and copper imports. But Germany and Japan export a substantial amount of machinery and manufactured goods such as cars to China. The weakness in the yen has helped boost Japan’s exports, and that might be coming at a cost for Germany. Germany’s economy is barely treading water, with the Sentix institute on Monday saying the largest economy in Europe is essentially still in a recession. Slowing exports from the EU to China could weigh on the outlook for the Euro.

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