The AUDUSD has failed to recover from its September slump, although last week it showed some marginal upward momentum. The gains have faltered at the start of the week ahead of some notable news. This could affect the Australian dollar as well as other major commodity currencies.
China will be the first major country to report its trade figures for September. Commodity currency bulls are hoping for a rebound in demand. That could help outweigh recent dollar strength that has put pressure on the AUD, even with the RBA hiking rates. Recent high-frequency data suggest there might be a growing turnaround in China’s economy. China is the largest consumer of Australia’s exports, so this could be a positive sign for the Aussie. On the other hand, if the data disappoint, the currency could return to this month’s lows.
Why China’s Economy Might Be Recovering
Economists still expect a fairly subdued Q3 GDP number from the world’s largest manufacturing economy. China’s growth rate fell to an annualized rate of 4.3% in the second quarter. Economists see it improving to 4.5% in the third. However, the poll took place before some recent positive data came out.
China’s Golden Week holiday provided some cautiously optimistic data, with overall spending rising above expectations. More people traveled than in prior years and spent more, though the average spend per trip was at multi-year lows. The outcome suggests that Chinese consumers remain restrained but resilient. Home sales, notably, improved following renewed stimulus efforts from the government, although the measures were limited and targeted.
The Commodity Rebound
China’s official manufacturing PMI returned to expansion after two months of contraction. The services sector saw a stronger surge. Logistics activity increased, suggesting strengthening demand and strong export trends.
Particularly relevant to the Australian dollar was a rebound in demand for raw materials, after a bump up in construction demand. Although the housing market remains under pressure, that pressure appears to be easing slightly. But demand for computing, data and network infrastructure is growing much faster. Those facilities actually require even more raw materials.
What the Market Is Looking For
Two major data points come out on Wednesday. Both have a good chance of moving commodity currencies, including the AUD. The headlines are likely to focus on the trade data, which comes out just a few hours after the inflation figures. Economists project that China’s September trade surplus will decline to $105 billion from $119.1 billion a month earlier. They expect imports to once again increase faster than exports. This would lower the trade balance despite the strong demand for Chinese products.
A little earlier, China will release its CPI figures. Economists project an uptick to an annual rate of 0.9% from 0.8% previously. High energy prices appear to be the main driver of rising consumer prices. The data suggest that the economy remains fairly cool, which would allow the Chinese government to increase stimulus measures. Lower inflation would likely support the Australian dollar, while a hot print could weigh on the AUD.
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