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AUD/USD Climbs as Chinese Trade Data Dents RBA Rate Cut Bets

AUD/USD Climbs as Chinese Trade Data Dents RBA Rate Cut Bets

Daniel Dubrovsky, Strategist

Talking Points:

  • AUD/USD climbs after China releases December Trade Balance
  • The trade surplus and exports expand, imports beat expectations
  • Trade data bodes well for Australia as RBA rate cut bets fade

Find key turning points for the Australian Dollar with DailyFX SSI

The Australian Dollar advanced against its US counterpart following the release of December’s Chinese trade data. In Yuan terms, China’s Trade Balance beat the 338.80b billion estimate coming in at a surplus of 382.05 billion. This is an expansion from November’s 343.10 billion surplus. Exports gained 2.3 percent (YoY) compared to the -4.1 percent forecast. This marks the largest increase since February 2015. At the same time, China’s imports declined 4.0 percent (YoY) versus the 7.9 percent forecasted contraction, marking the smallest loss in one year. This also marks the third consecutive month in which imports improved prior to the last month.

The more closely watched Dollar-based figures also beat estimates. The anticipated decrease from November’s positive $54.10 billion balance to the $51.30 billion consensus forecast was met with an expansion of $60.09 billion. Exports dropped less than expected at a 1.4 percent rate (versus –8.0 percent anticipated) while imports dropped 7.6 percent (against -11.0 percent projected).

The Aussie’s gain can likely be explained by the import figures. China is Australia’s largest trading partner. With demand for global goods from the world’s second largest economy showing signs of improvement, this could result in Australia having more export revenue. In addition, the report also showed that Chinese imports of iron ore rose 96.27 (in million tons) for December, compared to +82.13 (in million tons) for November. The commodity is Australia’s main source of trade revenue.

After the better-than-expected trade balance figures crossed the wires, Australian front-end government bond yields climbed. This suggests that the markets are becoming less certain of the Reserve Bank of Australia cutting rates in the near term. Overnight Index Swaps are pricing in a 16 percent probability of an RBA rate cut at its February 2nd meeting, and an 88 percent chance of one cut over the next 12 months.

AUD/USD Climbs as Chinese Trade Data Dents RBA Rate Cut Bets

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.