China Exports Tumble by 14.5% in July with Imports Down 12.4%

Highlights

• China’s imports and exports tumbled in July, signaling weakening demand for goods.
• However, hopes of more stimulus from Beijing will likely resurface in response to the latest trade data.
• Later today, US trade data and Fed chatter will also need consideration.

It was a busy start to the day on the Asian economic calendar. A pickup in Australian business confidence failed to move the dial, with investors cautious ahead of the trade data from China.

The trade data from China drew more interest this morning.

Exports from China tumbled by 14.5% in July versus a 12.4% decline in June. Imports slumped by 12.4% versus a more modest 6.8% fall in June. Economists forecast exports to fall by 9.8% and imports to decline by 5.6%. The dollar trade surplus widened from $70.62 billion to $80.60 billion.

The latest trade figures aligned with the Caixin Manufacturing PMI, which fell from 50.5 to 49.2 in July. Weak overseas demand sent the PMI to sub-50.

AUD/USD Reaction to China Trade Data

Before the trade data from China, the AUD/USD rose to a pre-stat high of $0.65763 before sliding to a low of $0.65364.

However, in response to the trade data, the AUD/USD tumbled from $0.65537 to a post-stat low of $0.65475 before rising to a high of $0.65593.

This morning, the AUD/USD was down 0.25% to $0.65574.

We use the AUD/USD as a proxy when considering the impact of economic data from China on the markets.

The Australian trade – GDP ratio stood at 45.8% in 2019 before declining as global trade terms deteriorated. As an exporter of commodities, weak global demand would adversely affect the Australian trade balance, the economy, and the Aussie dollar. Importantly, trade provides circa 20% of Australian jobs, a material consideration for the RBA. Weak trade figures from China would signal deteriorating trade terms.

Next Up

US trade data will be in focus later in the day. However, the numbers are unlikely to influence the Fed and market risk sentiment.

The US trade – GDP ratio stood at 25.48% in 2021 and, importantly, is not a Fed focal point, limiting the impact of US trade data on the US dollar.

However, investors should monitor the news wires for Fed chatter with the media. FOMC members Harker and Barkin are on the calendar to speak today.