Aussie Declines on Chinese Trade Data

China’s Trade Balance for January printed much hotter than expected at 27.3 Billion versus 10.8 Billion eyed, but the headline data masked a marked weakness in imports that suggested demand may be slowing significantly. The wide gap was caused by sharp slowdown in imports, particularly iron ore, which declined by -15.3% compared to a gain of 11.8% the year prior. Exports decline by -0.5%.

Despite the seemingly healthy surplus the overall contraction in trade activity does not bode well for Chinese growth in H1 of this year and indicates that the economic slowdown in China may be much worse than then market imagined.

The Aussie was the immediate victim of tonight’s news, dropping more than 100 points is Asian session trade as speculators feared that weak Chinese import demand would begin to weigh on Australian economy going forward. The pair traded at 1.0685, well off the 1.0800 level in North American close. As we noted yesterday, the AUD/USD remains vulnerable to a steep selloff if markets begin to price in a slowdown in Chinese GDP.

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