China’s trade balance for January showed a whopping $60.03 billion which was much better than an expected $48.90 billion. Exports were down 3.3% (versus +5.9% expected) while imports were 19.9% lower (vs -3.2% expected). The collapse in imports was the glaring concern particularly given the CNY has been appreciating recently and currently sits at record highs. The drop in imports is not good for commodity exporters such as Australia and probably explains why iron ore has been in a significant slump recently. Domestic demand in China remains weak and perhaps justifies the recent action taken by the People’s Bank of China. It’ll also be interesting to see what this means for the growth target which will be set in early March.
AUD/USD has had a lacklustre open as a result and dipped back below the 0.7800 mark. This level just seems to be a neutral point at the moment as the pair has been oscillating around it for a while. There has been a consolidation zone around this region for a number of sessions and unless we see a fresh catalyst, it looks like this level will hold. The pair remains in a downtrend though and I feel a break of support at the lower end of the current range which is at 0.7730 could trigger further near-term weakness. This would ultimately lead to a retest of lows printed in the aftermath of last week’s rate cut. On the domestic calendar, we have RBA Governor Glenn Stevens speaking at the RMB Clearing Bank Luncheon and ANZ jobs ads at 11.30am.