China Trade and UK Inflation Early Drivers of FX Market

Currencies linked to Chinese growth like the Australian and New Zealand dollars fell for the first time in over a week on Tuesday, after trade data from China reinforced fears that the world’s second largest economy is losing momentum.

In the European session, sterling stole the limelight, benefiting from a huge brewery deal. It hit its highest in nearly three weeks against the dollar in early trade after SABMiller (SAB.L) accepted a takeover proposal from Anheuser-Busch InBev (ABI.BR), in a deal worth 69 billion pounds.

But it gave up those gains, trading 0.7 percent lower against the dollar GBP=D4 and hitting a five-month low against the euro EURGBP=D4 after UK inflation turned negative again.

Earlier data showed Chinese imports fell 20 percent in the year through September, highlighting falling demand in the country and putting pressure on Beijing to roll out further stimulus measures.

That dragged the Australian dollar from a two-month high, to trade 1 percent lower at $0.7295 AUD=D4. The New Zealand dollar NZD=D4 was also down 0.6 percent at $0.6675.

“The sharp drop in Chinese imports don’t augur well for Australia and hence we are seeing the Australian dollar come under pressure,” said Manuel Oliveri, currency strategist at Credit Agricole, London.

China is a huge export market for Australia and the Australian dollar is used as a proxy for investments to China.

The Australian dollar also tumbled 1.2 percent against the Japanese currency, to 87.31 yen AUDJPY=.

The yen benefited from a flight to safety as stocks fell, while the dollar languished at three-week lows against a basket of currencies as expectations faded that the U.S. Federal Reserve will raise interest rates this year.

Via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza