China Trade Surplus Narrows, with the USD on the Back Foot

The China trade surplus sees a sharp narrowing as imports surge, with trade war chatter likely to influence, the economic calendar relatively quiet. · FX Empire

Bob Mason

Updated Tue, Aug 7, 2018, 10:24 PM

Earlier in the Day:

Economic data through the Asian session was on the heavier side this morning, with key stats including June current account figures out of Japan, June home loan numbers out of Australia, July trade data out of China and 3^rd quarter inflation expectation numbers out of New Zealand.

For the Japanese Yen, the current account surplus narrowed from May’s ¥1.938tn to ¥1.176tn in June, with the adjusted current account surplus narrowing from ¥1.85tn to ¥1.76tn, both stats coming up short of forecasts.

The Japanese Yen moved from ¥111.356 to ¥111.334 against the Dollar, upon release of the figures, before easing to ¥111.36 at the time of writing, up 0.02% for the session.

For the Aussie Dollar, home loans fell by 1.1% in June according to figures released by the ABS, reversing May’s 1% rise, while also falling short of a forecasted 0.1% increase.

The slide in number of owner occupied housing commitments was most pronounced in NSW (-290), Western Australia (-222) and Victoria (-123), while there were increases in Queensland (+212) and the Northern Territory (+4).

The Aussie Dollar moved from $0.74265 to $0.74312 upon release of the figures, the markets brushing aside the negative numbers in spite of the RBA’s concerns over the housing sector, with the upside also coming ahead of July trade data out of China that could reflect the early effects of the U.S – China trade war.

At the time of writing, the Aussie Dollar was up 0.12% to $0.743, with RBA Governor Lowe pinning back any major moves, the RBA Governor seeing little reason for a near-term rate hike, while suggesting that the next move would be up should the economy grow as expected.

Out of China, the USD trade surplus narrowed from $41.47bn to $28.05bn, which was worse than a forecasted narrowing to $39.33bn.

Exports rose by 12.2% in July, rising above a forecasted 10% increase and June’s 11.2% rise, while imports jumped by 27.3%, which came in well ahead of a forecasted 16.2% rise and June’s 14.1% increase.

For the Kiwi Dollar, the RBNZ survey showed that quarterly inflation is expected to stand at 2.04% in 2-years, while expectations over the 1-year stood at 1.86%, which was a pickup from the previous quarter’s 1.80%.

The Kiwi Dollar moved from $0.67329 to $0.67487 upon release of the figures, before rising to $0.6753 at the time of writing, a gain of 0.25% for the session, an uptick in inflation providing much needed support ahead of tomorrow’s RBNZ policy decision.

In the equity markets, the CSI300 recovered from heavier losses to be down by just 0.08% at the time of writing, while the Nikkei, Hang Seng and ASX200 were in positive territory, following the gains in the U.S on Tuesday, the CSI300 responding to more trade war chatter in the early hours.

The Day Ahead:

For the EUR, there are no material stats scheduled for release through the morning, which will give unemployment figures out of Portugal some attention, though we don’t expect the figures to have a material impact on the EUR that found some respite from a softer Dollar, June industrial production and trade data out of Germany being far from impressive on Tuesday.

At the time of writing, the EUR was up 0.18% to $1.1620 with direction through the day likely to be hinged on market risk appetite as trade war chatter hits the news wires.

For the Pound, there are also no material stats scheduled for release, leaving the markets to look ahead to key stats out of the UK on Friday that could shift sentiment towards the Pound, though the numbers will need to impress to shift negative sentiment towards Brexit and the ever rising prospects of a no deal departure from the EU.

At the time of writing, the Pound was up 0.11% at $1.2953, with downward pressure on the Pound, likely to be offset by Dollar weakness that will likely support the pair through the early part of the day.

Across the Pond, it’s a quiet day on the data front, with no material stats scheduled for release to provide direction, leaving the Dollar in the hands of the Oval Office, as both the U.S and China deliver promises and threats of more tariffs.

Outside of the Oval Office, FOMC member Barkin could provide some direction, with Barkin a voting member, though any chatter on policy will likely be overshadowed by noise from the Oval Office.

At the time of writing, the Dollar Spot Index was down 0.13% to 95.058, noise from the Oval Office in focus through the day.

For the Loonie, key stats scheduled for release this afternoon are limited to June building permits that are unlikely to have too much influence following the disappointing Ivey PMI numbers released on Tuesday, mixed data out of Canada raising doubts on whether the BoC can maintain its hawkish stance with NAFTA talks yet to deliver.

At the time of writing, the Loonie was flat at C$1.3053.

This article was originally posted on FX Empire