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Daily brief: AUD/USD struggles at 20-day SMA despite record China trade surplus

Asia-Pacific market sentiment lags despite rosy economic data out of China; China’s city of Yiwu sees partial lockdown after Covid cases identified and AUD/USD struggles to maintain itself above the 20-day SMA.

Monday’s Asia-Pacific outlook

Better-than-expected Chinese trade data, driven by strong export growth, may provide some fuel for markets to climb higher in today’s Asia-Pacific session. China posted a $101.26 billion surplus for July, beating the $90 billion consensus forecast. An 18% rise in exports—seen as a proxy for global economic demand—helped drive China’s surplus to a record figure. However, imports rose at a 2.3% year-over-year pace, disappointing analysts’ expectations of a 3.7% y/y increase and signaling that China’s domestic consumption remains soft.

The Australian dollar is trading slightly lower versus the US dollar this morning despite the rosy economic data.

AUD/USD fell over 1% last week as the Greenback climbed into the weekend after a red-hot US nonfarm payrolls report that showed over half a million jobs added in July, dragging the unemployment rate down to 3.5% from 3.6%. The still-strong labor market weakened the market’s ‘Fed pivot’” thesis, evidenced by overnight index swaps that showed 2023 Fed rate hike bets firming.

China’s city of Yiwu, located in Zhejiang Province, announced a partial lockdown after several positive Covid cases were identified. The key manufacturing hub has seen access to and from the city restricted, as well as the closure of gyms and restaurants, though factories remain open. That may change however, if cases continue to climb. China’s ‘Zero-Covid’ strategy remains vital to broader market sentiment. The longer it remains in effect, the more internal damage it risks inflicting on the world’s second-largest economy.

Meanwhile in the United States, lawmakers passed a key part of President Joe Biden’s agenda, likely marking the last major piece of legislation before US midterm elections start later this year. The vote threatens the Democrats’ majority in Congress. The bill focuses on environmental policy and includes nearly half a billion dollars in spending for energy and climate-related measures. It also removes a tax credit limit on electric vehicles (if they are built in North America), which should provide a boost for American-based EV companies. More broadly, the measure could be a tailwind for metals that are heavily used in EVs, such as copper, cobalt, and lithium.

Notable Events for August 08:

  • Philippines – Retail Price Index YoY (April)
  • Indonesia – Consumer Confidence (July)
  • New Zealand – Business Inflation Expectations (Q3)
  • Japan – Eco Watchers Survey (July)
  • Taiwan – Balance of Trade (July)

AUD/USD technical outlook

AUD/USD prices are holding above the 20-day Simple Moving Average following several intraday attempts to break below the key MA. If bears succeed in piercing lower, prices may return to around 0.6700, where a Falling Wedge breakout started last month. The Relative Strength Index (RSI) cut under its midpoint recently, a bearish momentum signal.

AUD/USD daily chart

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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