Coming up later tonight, or early tomorrow depending on where you are, we have the first major bit of economic data out of Australia for the year.
A better than expected trade balance might be what the market needs to reverse the downslope in the AUDUSD so far this month.
The trade balance is also key given the weakness in commodity prices lately, despite the green shoots on the trade front.
Initial optimism about the US and China reaching a deal ahead of the holidays has turned into a bit of impatience. The two leaders have yet to actually sign the deal.
While the markets, so far, seem to generally not care about the tensions in the Middle East, it might be a distraction that could further delay a trade deal. And that wouldn’t help the case for Aussie strength.
What We Are Looking For
The headline number that is likely to move the market immediately is the Trade Balance.
Expectations are for this to increase to AUD6.1B from AUD4.5B in November. We should note that Chinese firms usually ramp up purchases to build inventory ahead of the Lunar New Year holidays.
Australia’s trade surplus has been declining since reaching a record peak in June. The driving force behind that, and what analysts are going to be interested in, could drive price action after we get the balance: the difference between imports and exports.
Over the last several months, Australia has benefited from unusually high commodity prices. This includes iron ore, which has allowed them to increase the value of their exports substantially.
The trade balance has been over three times higher than last year. We could expect this to impart strength to the Aussie, as companies repatriate profits.
On the other hand, the internal economy has been struggling. We can clearly see this in weak import growth.
While exports grew 5% in November (the last month from which we have data), imports grew only 0.4%. We would expect this lack of consumer confidence to keep the RBA on an easing bias and offset potential strength from the good trade numbers.
Potential for Risk Aversion?
Last week’s PMIs came in just slightly better than anticipated, but still in contraction.
Generally, Australia’s outlook remains dependent on the situation in China. However, the recent headlines might also give some investors pause. This is because the economic effects of the wildfires across the country are not yet known.
The fires themselves have not majorly affected any significant economic infrastructure. However, the change in government policies to respond to them could have an effect on fiscal priorities. Also, the momentary disruption in transportation in different areas could have a slight negative impact on indicators for January.
Several analysts are pointing to the AUDUSD near significant support. This could be bolstered if we get some good economic data, later. However, that support might weaken a bit should we see a significant miss in the trade balance without an improvement in imports.