AUD/USD rally fizzles after a slight decline in China imports

AUD/USD rally fizzles after a slight decline in China imports
Written by:
Crispus Nyaga
7th August, 04:52
Updated: 7th August, 04:53
  • The AUD/USD rally fizzled after mixed trade numbers from China.
  • The data showed that exports increased by 7% while imports by more than 1.3%.
  • The pair also reacted to the RBA statement on monetary policy.

The AUD/USD pair eased slightly today as traders reflected on the stronger US dollar, China trade numbers, and the economic outlook information from the RBA. The pair is trading at 0.7205, which is slightly below yesterday’s high of 0.7240.

AUD/USD
AUD/USD turns lower after China trade data

China exports rebound

The AUD/USD pair tends to react significantly to data from China. That is because of the vast amount of trade the two countries do. According to Australia’s trade agency, the two countries’ trade volume is more than $235 billion. In 2019, Australia exported goods worth more than $153 billion to China and imported goods worth more than $82 billion.

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In a statement by the General Administration of Customs, China’s exports increased by 7.2% in July while imports declined by 1.4% from a year ago. Analysts polled by Reuters were expecting the exports to fall by 0.2% from a year ago. They also expected the imports to have increased by 1%.

As a result of rising exports and falling imports, the country’s trade surplus jumped to more than $62.33 billion, surpassing the $42 billion that analysts were expecting.  The surplus rose by almost $20 billion from June.

Recent numbers have shown that the Chinese economy has recovered. Last month, data showed that the country’s economy expanded by 5.2% in the second quarter, becoming the first major country to return to growth. And this week, PMI data by Caixin and Markit showed that manufacturing and services sectors had made strong progress.

RBA statement on monetary policy

On Tuesday this week, the Reserve Bank of Australia (RBA) delivered its interest rate decision. As was widely expected, the bank left interest rates unchanged and pledged to restart its asset purchases. The goal of these purchases is to ensure that the yield of the three-year government bonds remained at 0.25%.

Today, the bank released its comprehensive statement of monetary policy. In the statement, the bank said that it expects that Australia’s economic recovery will be uneven, especially because of the ongoing second wave of the virus.

The bank expects that the economy will contract by 6% in 2020 and then rebound by 5% in 2021. It also expects the unemployment rate will rise to 10% and then gradually drop to 7%. Also, it sees inflation remaining below 2% over the next few years. Still, it said that a stronger recovery was possible if the virus is contained.

AUD/USD technical outlook

AUD/USD
AUD/USD technical analysis

The AUD/USD pair is trading at 0.7205. On the daily chart, the pair is trading above the 50-day and 100-day exponential moving averages while the RSI remains elevated. The price is also above the ascending trend line that is shown in blue. Therefore, I suspect that the pair will continue rising as bulls attempt to stamp their authority above 0.7200.

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