Exports climbed 5.7% YoY in November vs. -0.8% in October. The country’s imports rose 1.7% YoY in the same period vs. 1.4% recorded previously.
In US Dollar (USD) terms, Exports (YoY): 5.7% vs. 3.8% expected and 1.1% last.
More to come…
This section was published on Monday at 1:00 GMT as a preview of China’s Trade Balance data.
China’s Trade Balance Overview
The General Administration of Customs will publish its data for November on Monday at 03.00 GMT. Trade balance is expected to widen to $100.20B in November, compared to $90.07 in the previous reading. Exports are expected to rise by 3.8%, while Imports are projected to climb by 2.8%.
As the Chinese economy has influence on the global economy, this economic indicator would have an impact on the Forex market.
How could the China’s Trade Balance affect AUD/USD?
AUD/USD trades on a negative note on the day in the lead up to the China’s Trade Balance data. The pair edges lower as markets turn cautious ahead of the Reserve Bank of Australia (RBA) and US Federal Reserve (Fed) interest rate decisions later this week.
If data comes in better than expected, it could lift the Australian Dollar (AUD), with the first upside barrier seen at the December 5 high of 0.6650. The next resistance level emerges at the September 16 high of 0.6688, en route to the September 17 high of 0.6707.
To the downside, the December 4 low of 0.6598 will offer some comfort to buyers. Extended losses could see a drop to the December 1 low of 0.6532, followed by the 100-day EMA of 0.6520.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
