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Chinese Trade data sends risk assets shifting lower

15.27 AEST, Friday 10 August 2012

Chinese Trade data sends risk assets shifting lower

By Tim Waterer (Senior Trader, CMC Markets)

Financial markets have entered a state of plateau with traders now expecting that September will be the time that central bank action steps up a gear in Europe and the US. Investors stepping into risk assets around the globe are taking Draghi to be a man of his word, with a growing expectancy that central bank bond buying will materialise in the not too distant future. However in the meantime, the wait for September action from the ECB remains a somewhat nervous one.

The Chinese Trade Balance data today did not make for very pleasant reading, with the $25.2b result missing the target by some degree, and ‘risk’ assets reacted accordingly with a shift to the downside. This result, in conjunction with Thursdays CPI and Industrial Production numbers, paints a fairly bleak picture of Chinese economic health however if there is a silver lining it is that the dismal data should bring forward the timeline on further Chinese monetary policy easing.

The Australian Dollar naturally felt the effects of the docile looking Chinese Trade Balance numbers more than most currencies given the trade ties between the two nations. During the session today the AUDUSD rate has given up around half a cent, with the red numbers on Asian equity bourses also reducing the appeal of the Aussie today.

The RBA statement today with its upward revisions to growth and inflation forecasts should arguably have provided a supporting influence to the AUD, however the shadow cast over risk currencies by the disappointing numbers from China was the major theme of the trading session. Also not helping the AUD’s cause was concern expressed from the RBA over the currency’s value and the impact potential on growth, however I cannot see the central bank intervening in the FX market anytime soon in an effort to devalue the currency, if recent history is any guide. I think at this point the comments regarding the high AUD will remain purely an observation by the RBA.

The Australian sharemarket was lacking clear direction in the early going today however the quite dismal Chinese Trade Balance data sealed the fate of the local index in ending the week on a negative note. However if the mundane economic indicators from China this week translates into an imminent rate cut from the PBoC then the move lower on our index could just turn out to be a blip on the radar and not necessarily a sign of future market weakness.


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