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China trade balance preview - what to expect in AUD/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Guatemala) - AUD/USD made recovery attempts in a better risk environment, but the 100 SMA at 0.7008 on the hourly sticks capps in the main. Risk has started to filter through again after the PBoC intervening in the offshore market yesterday, and all eyes remain on China again today with the extra twist of the trade balance for December's business released in the session.

    AUD/USD temporary lift on PBoC intervention

    The yuan climbed as much as 0.7 percent versus the dollar in Hong Kong, and this briefly erased its discount to the onshore rate for the first time since October. The cost to borrow yuan overnight in the city's interbank market rallied to 66.82 percent. That was more than five times the previous high on Monday while the PBOC's purchases reduced supply of the currency. The Central Bank is intervening in the Hong Kong market to try and curb bets on a heavy depreciation of the yuan and close the gap between onshore and offshore rates as a requirement for IMF members.

    China's Trade balance outlook

    With all eyes on China this year so far, the trade balance is even more of a potential driver for this session. Among the stock market performance and more on the Yuan, as well as commodities while in general being at the lowest prices since 1991 accordinging to Bloomberg's commodity index, the trade balance will offer opportunities either way the outcome. However, the bias is to the downside for the Aussie given that the inputs are not likely to be positive from December's trade in China.

    "Manufacturing PMIs have disappointed of late, with weak external demand a factor. As a result, the risk lies with exports registering another decline from the -6.8% Y/Y prior; we expect -7.5% (consensus: -8.0%). The market is more likely to look at imports to gauge internal demand. Here too we pencil in another decline, looking for –11.0% Y/Y, in line with the consensus, and down from the prior -8.7%, but part of this is due to the CNY depreciation over December," explained analysts at TD Securities.

    AUD/USD key levels to monitor

    Technically, on a bearish result, the September lows remain compelling at 0.6940 while the low already tested here at 0.6939. A further retest will look to head towards the 0.6907 lows. The 2004 lows at 0.6742 then come into the picture. The 100 1hr sma at 0.7008 and 0.7020 are first resistances on a positive outcome before 0.7080. 0.7120 thereafter and 0.7156 are next stops.
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