AUD/USD Drops After China Trade Data Spurs RBA Rate Cut Bets

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Talking Points:

• AUD/USD falls after China’s trade figures crossed the wires

• Chinese exports in US Dollar terms fall to lowest since March 2015

• Soft news-flow created RBA interest rate cut speculation

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The Australian Dollar fell against its US counterpart after China released its trade figures in Yuan terms. Exports fell at rate of 6.6 percent year-on-year in January versus economists’ estimate of a 3.6 percent growth and the 2.3 percent reading in December. Imports disappointed as well by contracting 14.4 percent (YoY), lower than the forecasted 1.8 percent growth and the prior decline of 4 percent. The trade balance in Yuan terms was 406.20b, higher than the anticipated 389.01b and the previous figure of 382.05b

The currency continued its decline to a small degree when China’s data in US Dollar terms for the same period was released nearly twenty minutes later. Exports decreased by 11.2 percent (YoY), which is worse than the expected drop of 1.8 percent and December’s -1.4 percent. This was the lowest mark since March 2015. Imports showed a print of -18.8 percent (YoY) as opposed to the -3.6 percent expectation and the prior’s decrease of 7.6 percent. The trade balance in US Dollar terms was 63.29b which is better than the 60.60b forecast and the previous reading of 60.09b.

Australian front-end and ten-year bond yields tracked lower with its currency when the first set of the news-flow crossed the wires. This may highlight traders’ speculation of a near-term RBA interest rate cut. China is Australia’s main trading partner which means a slowing economy in the former may bode ill for the latter. According to overnight index swaps, the financial markets are pricing in a 17 percent probability of an interest rate cut at the central bank’s March 1st meeting and 32 basis points of easing over the next twelve months. In a testimony to his country’s parliament last week, Reserve Bank of Australia Governor Glenn Stevens said he is willing to implement additional easing if necessary.

CHINA'S TRADE FIGURES IN US DOLLAR TERMS

original source

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