THE TAKEAWAY: Fall in Chinese imports > Less demand for raw materials > AUD Pressured
Faster than expected inflation > Continued tightening possible > AUD Pressured
|
EVENT |
ACT |
EXP |
PREV |
|
Consumer Price Index (YoY) (JUN) |
6.4% |
6.2% |
5.5% |
|
Producer Price Index (YoY) (JUN) |
7.1% |
6.9% |
6.8% |
|
Trade Balance (YoY) (JUN) |
$22.27B |
$14.20B |
$13.05B |
|
Exports (YoY) (JUN) |
17.9% |
18.6% |
19.4% |
|
Imports (YoY) (JUN) |
19.3% |
25.3% |
28.4% |
Major inflation and trade data for the world’s second largest economy were released this weekend on Saturday and Sunday. Although major markets are closed, the latest Chinese records for June may suggest additional headwinds ahead for the currencies of two of China’s largest raw materials suppliers.
Despite an increase in the reserve requirement to 21.00% on May 18th and a subsequent hike to a record 21.50% effective on June 20th, the People’s Bank of China and the central government continue to prevent the domestic economy from overheating. On July 6th, the PBoC also announced a 0.25% increase in the benchmark rate, marking the 3rd increase in 2011.
Chinese inflation in June rose to a post-recession record of 6.4% as the price of major foods continues to climb. Premier Wen Jiabao has previously commented that food prices would need to be the first to brought under control, and conceded that the inflation target would have to be moved from around 4% to 5% by the end of the year. Continued tightening would hurt the demand of Australian and New Zealand raw materials, weakening the respective currencies.
Although the trade balance for June beat the median expectations by over USD 8 billion, the jump in surplus came at the cost of a sharp fall in imports. Chinese import trade has steadily decreased since its January 2010 high, dimming prospects that major world economies including Australia and New Zealand can lead their own respective recoveries through exports.
The additional decline in year-over-year exports from 19.4% previous to 17.9% may also suggest that the Chinese economy is gradually shifting away from relying on exports and instead focusing on its domestic economy. This systemic shift may prove to be devastating to the Australian and New Zealand economies as one of their largest trade partners may shift its capital towards itself.
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