Dollar Set to Rise; Yuan and Aussie Hold Amid Weak China Trade Data

The dollar had turned decisively higher on Tuesday as the traders struggled to get a hold of the divergence in the growth outlooks between the two largest economies in the world while at the same time becoming immune to yet another disappointing set of Chinese trade figures.

Exports in China fell by an annual of 14.5% in July, while the imports contracted by 12.4%, as shown in the data on Tuesday, which marked the biggest decline in the outbound shipments from the second largest economy in the world since February 2020.

The yuan, along with the Australian and the New Zealand dollars, extended their drop in an initial shaking reaction to the figures but soon trimmed some of the losses on the fact that the weak data only strengthened the need for a further stimulus measure from Beijing.

The offshore yuan was previously 0.24% lower at $7.2214, while the Aussi slipped by 0.35% to $0.6551.

The Kiwi also fell by 0.27% to $0.60905. Both of the Antipodean currencies are mostly used as liquid proxies on behalf of the Chinese yuan.

“Those weaker exports and imports figures just underscores the weak external and domestic demand in the Chinese economy,”

– Carol KOng, Currency Strategist, Commonwealth Bank of Australia.

“I think markets have grown increasingly insensitive to disappointing Chinese economic figures … we’ve got to a point where weak data will just reinforce calls for further policy support.”

While the currency move in Asia has been quite minimal, the dollar has extended its gains during this trading session.

“It’s become a wave of U.S. dollar buying for sure,” –

Sean Callow, Senior Currency Strategist, Westpac.

“Perhaps the market was just expecting that there would be a more upbeat tone to risk appetite today, given U.S. equities rallied.”

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