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Australian Dollar Gains on China Trade Data May Not Hold

Australian Dollar Gains on China Trade Data May Not Hold

Ilya Spivak, Head Strategist, APAC

CHINA TRADE, AUSTRALIAN DOLLAR - TALKING POINTS:

  • Australian Dollar up as China reports better-than-expected import, export data
  • New Zealand Dollar ticked down and Yen fell as the print buoyed risk appetite
  • Follow-through may be absent markets weigh Sino-US trade war de-escalation

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

The Australian Dollar rose as China reported better-than-expected trade data. Exports fell 0.9 percent on-year in October, marking a far smaller drawdown than the 3.9 percent decline expected. Imports ticked down 6.4 percent, a similarly less-bad result than median forecasts envisioning a loss of 7.8 percent.

Traders often extrapolate positive news out of the East Asian giant as supportive for Australia because the former country is the latter’s largest export market. They reason that an upturn in China’s prospects – even in relative terms – bodes well for Australian firms’ demand outlook, and thereby the economy as a whole.

China’s commanding position as one of the top engines of global growth also means that rosier data flow has scope to boost broader sentiment. It is thus true to form that the New Zealand Dollar – another cycle-sensitive unit – rose with its Aussie cousin while the anti-risk Japanese Yen pulled back.

Chart of Australian Dollar and New Zealand Dollar rise, Japanese Yen fell on China trade data

Chart created with TradingView

AUSTRALIAN, NEW ZEALAND DOLLAR OUTLOOK HINGES ON US-CHINA TRADE DEAL

Follow-through might be limited from here. Investors are unlikely to commit in amid uncertainty about the prospects of even a “phase one” US-China trade accord. Markets cheered Beijing’s hint at a coordinated tariff rollback but whether the White House would sign up to such a move was soon in doubt.

The technical picture is ominous as well. The Aussie Dollar challenging the bounds of a month-long uptrend. The like-minded Kiwi Dollar is in a similarly precarious position. Building pro-cyclical exposure may be still more unattractive as liquidity thins into the weekend even as headline risk remains.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

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