Aussie dollar near 20-month low

The Australian dollar is trading at $0.9421, down 0.8%, after China announced weaker-than-expected trade balance and inflation figures over the weekend.

Beijing revealed a 0.3% drop in imports in May, compared with the same month last year. This fall indicates that domestic demand is declining in the world’s second-largest economy. China also reported a drop in inflation, and this too highlights how falling demand could be a sign that the country is slowing down.

China acquires a large portion of its natural resources from Australia, so if Chinese demand begins to wane there could be a negative impact on Australian growth. Worries about this are prompting traders to sell AUD/USD.

The latest unemployment data from the US last week told us that unemployment has ticked up to 7.6%. This provided a boost to the Australian dollar on Friday, as the Fed stated it will keep its monetary policy loose until the jobs market improves. As it is unlikely that the Fed will taper its stimulus package in the near future, if the US continues to report weak economic indicators we could see traders tempted back into buying the Australian dollar and selling the US dollar.

Spot FX AUD/USD chart

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