The key data releases for next week will centre around China, as it reports its trade balance and is the first major economy to post Q1 GDP figures. This will provide valuable market insight into how the war in the Middle East is impacting global economies. As a result, there could be a significant amount of outlook recalibration in currencies, generating additional volatility in Forex pairs.
China is the world’s largest consumer of crude and also the largest buyer of Gulf-sourced petroleum. On the other hand, it’s also by far the largest buyer of Iranian oil that has been able to continue to exit the Middle East unimpeded by the war. This is expected to have an important impact on the import side. But oil is a base material for many crucial products produced in China, such as plastics, resins (including the largest component by volume in solar panels), and petrochemicals. Traders will be keenly watching to see what the real-world effects are and how that might affect the global economic outlook.
China’s Trade Surplus Cut in Half
Analysts expect a dramatic change in China’s trade figures, with its March trade surplus more than halving from February’s record $213.6 billion to just $105 billion. Part of the difference can be explained by the situation before the war, as buyers increased in February amid global uncertainty. The trade disruptions, including some shipping avoiding the Red Sea, are expected to dampen exports.
But the bulk of the change is anticipated to come from increased expenditure due to higher oil prices, which will dramatically increase the value of imports. Normally, higher import figures from China would be interpreted as a positive sign for commodity currencies, but that is likely not to be the case. Instead, traders will be looking closely at import components to see just how much higher crude prices influenced the data.
The Major Currencies Affected
The potential impact of higher energy prices will be relevant to commodity currencies, with a particular focus on Australia. That’s because its largest export to China is iron ore, which requires a lot of energy to process into steel. Other commodity exporters could also be affected. On the other hand, New Zealand primarily exports consumer goods and could be more influenced by China’s GDP figures later in the week.
China is expected to experience a substantial economic slowdown in the first three months of the year. Q1 GDP is forecast at 0.8%, down from 1.2% in the fourth quarter. However, on an annual basis, growth is expected to accelerate modestly to 4.6% from 4.5%, primarily due to base effects.
Alighting the Market Forecasts
China set a growth target of 4.5-5.0% this year, and forecasts still suggest the Asian giant can achieve it, even with the disruption from the war. However, the outlook could come under increased pressure as Beijing tries to shift the economy towards a domestic focus and boost domestic consumer demand.
The data could also be seen as a test for expectations for other major economies. Traders will be looking to test economists’ and analysts’ ability to forecast the war’s impact on economic growth. If there is a major deviation from the forecasts, markets could retreat amid the growing uncertainty. But if China manages to beat the outlook, traders might feel more confident that other economies might also show resilience to the oil supply crunch.
