China latest trade balance for the month of April came in at $18.16B USD, a huge reversal from the 0.88B deficit of March. This print is also 2 billion higher than anticipated, suggesting that the previous deficit may be a seasonal rather than a structural issue. Regardless whether the headline figure is a good representation of Chinese economic health, the underlying numbers are actually highly encouraging – Exports grew 14.7% Y/Y vs an expected 9.2%, while Imports grew 16.8% vs 13.0% expected. Both numbers are showing acceleration, printing much higher growth compared to March’s 10.0% and 14.1% respectively. On top of exhibiting that growth in Chinese economy is healthy, the increase in imports also means that China is buying again, which is good news for countries like Australia whose exports mostly go to China.
AUD/USD rallied a little after the data release, lifting price from the dip that was dragged down by its neighbor NZD/USD earlier on. However, price was unable to break higher from the new downward trendline that typifies the bear trend seen since the start of the week, suggesting that overall sentiment still remain deeply bearish – not surprising given RBA’s surprise rate cut yesterday.
Stochastic readings is giving us an opposite signal though, with current readings apparently pointing higher and not lower, which suggest that the rebound from yesterday’s low above 1.015 is not yet finish. That does not mean that price is on a full bullish reversal mind, as the overall bearish bias still stand as long as 1.02 to 1.022 resistance band is not broken.
Daily Chart does not share the same optimism as Hourly with stoch readings still firmly pointing lower, with the option to test Mar lows still open. Price is certain to form a 3 black crows patten, which will entrench current bearish pressure from the 1.058 decline. However, a move back towards 1.022 cannot be ignored, as price may still see some corrective pullback before any sell-off continues. This go in line with the short-term chart suggestion that a move higher from where we are now is possible, but the likelihood certainly is not as strong as compared to the overall bearish bias faced currently.
Fundamentally, we need to ask whether these Chinese numbers are reliable. Most if not all countries have been cutting their 2013 forecast. RBA rate cut yesterday also allude to the fact, stating that growth is expected to be ‘below trend’. Hence given such global outlook, it is strange to see exports from China continue to grow at such stupendous pace. Who is buying the Chinese goods when everybody else is suffering from economic slowdown? There is also some quarters speculating that the Chinese Government may be using these numbers as policy guidance. Interpretation of such shenanigans varies, but the popular belief is that the Central Government may wish to manipulate such numbers to show that PBOC intervention is not necessary even when slowdown in the economy is expected. Whatever the case may be, be prepared that the numbers may not reflect the true situation from China (there are some investigation for fraud going on with regards to last month’s figures).
What does that mean to AUD/USD? Not much to be honest, as price isn’t looking the most bullish right now, suggesting that traders are disregarding the “good news” from China. If price does move above 1.022 on this news alone, then we could potentially see stronger sell-off in the future if the numbers are proven to be “deceptively optimistic”.
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