Chinese Trade Balance was much better than expected, with Feb’s data coming in at $15.25B versus an estimate of -$6.90B. However, trade balance narrowed from Jan’s $29.15B figure. Conventional wisdom tells us that a better Chinese economy is good for exporters to China, as demand tend to increase during bumper years. However, AUD/USD actually traded lower, pushing price from 1.026 to a low of 1.024 following the news. Looking beyond the headline figure, we can easily understand why. Though China’s exports grew 21.8%, much higher than expectations of 8.1%, imports fell 15.2% versus analysts estimates of -8.5%. It seems that demand from China is much weaker than expected, which will weigh on the Oceanic currencies Aussie and Kiwi whose GDP depends largely on Chinese consumption.
Hourly Chart shows price finding support along 1.024, with current price seeking to break 1.026. While Stochastic is showing that a bull cycle is under way. Perhaps market is buying into the longer term prospect of AUD/USD rather than the immediate impact. Yes the declining imports is a major concern, but should China continue to post healthy export growth, local demand is bound to bounce back. Also, it is important to note that Jan’s import grew 28.8%, hence a -15.2% basically “normalize” the overextended growth and should not cause alarm. Lastly, the Lunar New Year celebration has also eroded imports a fair bit as some Chinese businesses halted operations for the full 15 days. As such, the surprise story isn’t so much about imports, but rather exports remain highly robust despite seasonality.
AUD/USD on the daily chart is still looking heavy. Stochastic reading is looking to form an interim peak, which suggest that the Channel Top resistance has a higher likelihood to hold. In the even that the resistance is broken, 38.2% Fib retracement would still provide further resistance, though a break above the 50.0% Fib may result in acceleration on the upside due as the current downtrend from 1.06 may be invalidated.
Though recent Chinese’s Manufacturing PMI indicated that growth rates are slower, the growing exports is a good sign both for China and for Europe and US, whom China mostly export to. If global economy continue to show signs of recovery, AUD/USD may actually mean reverse towards parity as Australia’s stability and AAA rating will lose their shine, adding more woes to the plateauing mining sector and the Australian economy at large.
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