The Australian Dollar (AUD) remained relatively flat at AUD/USD 0.6650. This stability followed the solidity of China’s trade balance data, which was much stronger than expected. According to China’s November trade data, exports received a big lift, jumping 5.7% in Chinese Yuan (CNY) terms. This is a notable turnaround from the 0.8% decline in October. This positive news is a boon indeed for our antipodean cousins, whose economies are heavily based on exporting to China.
The broader Australian economy is adjusting to this remarkable evolution. At the same time, market players are focusing on the US Federal Reserve’s next monetary policy announcement scheduled for Wednesday. Economists forecast that the Fed will lower interest rates 25 basis points. This action would reduce the current target range to a new lower band of 3.50%-3.75%. The confluence of these factors has made a conducive environment for the Australian Dollar.
China’s Trade Balance Data Surprises Economists
China’s November trade balance data shocked to the upside—with a clearly strong 21% spike in exports. The 5.7% increase in exports, reported in CNY terms, is a big recovery after last month’s drop. It was an especially impressive announcement given economists had forecasted a much more modest showing.
This continues a positive trend for Australia whilst the country is extremely susceptible due to its large reliance on exports to China. Australia’s economic dependence on China arguably makes the chillingly close relationship between the two economies more important and more dangerous to the Australian market. China exhibits some signs of resilience, as trade figures surprise on the upside. This doubles down on the Australian Dollar, raising the hopes of Aussie traders and investors.
Additionally, the stark and opposite performance of China’s exports further highlights the volatility that is so prevalent in the current state of global trade. The previous month was down 0.8%. This international market collapse, driven by rising interest rates and persisting inflation along with recent geopolitical shocks, makes our ongoing recovery all the more impressive.
Implications for Australian Economy and Currency
On top of all this comes the surprise recent inflation data from Australia, which further muddies the waters. In the third quarter, inflation rocketed to an annualized rate of 3.2%, up from 2.1% in the second quarter. This raise does encourage speculation on what the Reserve Bank of Australia’s (RBA) forthcoming monetary policy moves will be. It could even have a large effect on the Australian Dollar.
At the same time inflation is spiking. Consequently, market-watchers see the RBA taking a less aggressive monetary stance with respect to its policy framework. The anticipation surrounding the Fed’s impending rate cut may influence the RBA’s decisions as it navigates its own challenges related to inflation and economic growth.
A very sharp time for the Australian Dollar, up 1.52% day on day against the USD. It made strides against other currencies, up 0.91% against the Euro, 0.73% against the British Pound and 1.47% against the Swiss Franc. While these changes are undoubtedly painful, such movements at least show traders reacting appropriately to good domestic and global economic news.
Market Reactions and Future Outlook
The US Dollar Index (DXY) has been trading near its five-week low of 98.75. Market participants are hanging on the coattails of these major economic happenings, waiting to see how they’ll move the currency markets. The AUD/USD pair has pushed its winning streak to a full twelve trading days in a row. This outstanding showing is a big vote of confidence by investors in the Australian dollar.
Indeed, the …next Fed policy announcement … will be crucial in determining market expectations and currency valuations. And if the Fed fulfills expectations by cutting rates soon, this weakness could deepen. This would add upward pressure to currencies such as the AUD, which are already on the back foot from improved economic fundamentals making those currencies look comparatively better.