Commodity Currencies Continue Climb on Curious Chinese Trade Data

Thursday, April 11, 20130 comments

The commodity dollar bloc is outperforming for the second day in a row this week, as Chinese trade data from March showed a much greater than expected increase in exports, suggesting that the world’s second largest economy is seeing increased activity with its major regional trading partners like Australia and New Zealand. And while the rally seen by the commodity currencies, in this context, makes perfect sense, a breakdown of the actual trade figures raises more questions than it answers.
The Chinese Trade Balance for March came in at a -$880M deficit, well-below the $15.15B surplus forecasted, as Imports rose by +14.1% y/y versus +6.0% y/y expected, and Exports disappointed at +10.0% y/y versus +11.7% expected. Why? Exports fell to China’s major trading partners, including the Euro-zone and the United States, where the declines ranged from -7% y/y to -15% y/y. This is a clear signal that export-driven growth is unlikely to take hold in China this year, as slow recovery in the US and the worst recession in four years grips Europe.
But the data came across as very questionable, on the small peculiarity that exports to Hong Kong were up by +93.0% y/y in March. Like mainland China, Hong Kong exports a significant portion of its goods/services to Western developed nations; in context of the declining Chinese export figures to the Euro-zone and the United States, either Hong Kong had a truly historic month of consumption, or rather, the March Chinese trade figures are entirely distorted.
Taking a look at European credit, lower peripheral yields on the back of the news that Ireland and Portugal could receive 7-year extensions to repay their bailouts has helped prop up the Euro, if only slightly on Wednesday. The Italian 2-year note yield has decreased to 1.431% (-4.4-bps) while the Spanish 2-year note yield has decreased to 2.058% (-0.8-bps). Likewise, the Italian 10-year note yield has decreased to 4.328% (-1.4-bps) while the Spanish 10-year note yield has decreased to 4.634% (-6.1-bps); lower yields imply higher prices.
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AUD: +0.34%
CAD: +0.20%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.01% (+0.45%past 5-days)
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