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Market performance was mixed ahead of what is set to be an eventful day. Chinese April trade data were better than expected with both exports and imports growth proving strong, although Chinese equities are little changed. In contrast, Q1 Japanese GDP growth was revised down sharply due to weaker consumer spending.
While Australia's trade surplus narrowed 85 pct to AUD 0.555 billion in April of 2017 from an upwardly revised AUD 3.169 billion in March. The figure came in below market expectations of AUD 1.95 billion as exports reported a steeper decline than imports. It was the sixth straight month that the nation recorded a trade surplus but the weakest one yet in the series. Compared to the prior month, sales of goods and services decreased by 8 pct to AUD 30.59 billion while purchases of goods and services dropped 1 pct to AUD 30.04 billion. Considering January to April 2017, the trade surplus was recorded at AUD 9.5 billion.
China: China's trade surplus fell to USD 40.8 billion in May of 2017 from USD 44.8 billion a year earlier and missing market consensus of a USD 46.3 billion surplus, as exports rose less than imports. Year-on-year, sales grew by 8.7 pct to USD 191.0 billion, faster than an 8.0 pct rise in the prior month while markets expected a 7.0 pct gain. Purchases went up 14.8 pct to USD 150.2 billion, after an 11.9 pct increase in a month earlier and above estimates of an 8.5 pct rise. In April 2017, trade surplus stood at USD 38.1 billion.
Most notably, China has been the major trade partner of Aussies and Kiwis, Australia is an island economy that strongly benefits from its close proximity to the vast markets of China and Japan which together represent almost half (46.4%) of all Australian export sales, the major exports include iron ore, coal, and gold.
More than a year or so, although AUDUSD has been moving in the consolidation phase, it has also been in non-directional trend. The underlying spot prices are factored in owing to the RBA outlook (on hold for some time) that is anchoring front end valuations.
While we expect 3yr swap rates to remain in a 1.8% to 2.3% range, with core inflation still below 2%. But multi-month, we expect the ongoing rise in US interest rates to chip away at AUDUSD, leaving it around 0.73 by Q3. These leave the A$ with strong resistance at 0.76. We expect to see it heading towards 0.74 by year end.
