AUD/USD targets Chinese trade balance as zero-Covid strategy continues

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Australian Dollar, AUD/USD, Chinese Trade Balance, CPI, Sentiment – Talking Points

  • China’s trade balance in April could set the tone for sentiment in APAC trade
  • CPI inflation data from China and the United States are in focus this week
  • AUD/USD could test May low after bulls struggle to sustain gains

Monday’s Asia-Pacific Forecast:

A wave of risk aversion hit global financial markets last week, sending major equity indices lower amid rising government bond yields. The US Dollar rose against many of its peers after traders digested the Federal Reserve’s policy decision. However, the Australian dollar managed to stay afloat thanks to a hawkish surprise from the Reserve Bank of Australia. China’s trade balance is due out today, with analysts expecting the country’s surplus to rise from $47.38 billion to $51.90 billion, according to a Bloomberg survey. The data will provide insight into China’s supply chain issues as it battles to contain Covid outbreaks in major economic hubs.

Asia-Pacific traders will also be closely watching developments out of China this week, which could have an outsized impact on the Australian dollar, given Australia’s trade relationship with China. The People’s Bank of China may opt to cut lending rates across the economy in the coming weeks after a group of senior Communist Party officials pledged to firmly uphold the country’s ‘zero-Covid’ policy .

China’s consumer price index (CPI) for April is expected to be released later this week. Analysts expect the month-on-month inflation rate to climb to 1.9% from 1.5% on an annual basis, according to a Bloomberg survey. This would be the highest level since November 2021. A weaker-than-expected print would give the PBOC more leeway to adopt dovish policy to help the economy. The figure will also help economists gauge global inflationary pressures. The United States is expected to release its own CPI report this week.

Stocks in China and Hong Kong fell last week, and this trend may continue in the coming days as markets calibrate to rising bond yields. Last week, NIO, China’s leading electric vehicle maker, was added to a list of potential withdrawal from US stock exchanges by the SEC. The move has reignited concerns in China’s tech sector. Indonesia’s first-quarter gross domestic product (GDP) growth is expected to cross the wires 5.0% on an annual basis. That would be slightly down from 5.02%.

AUD/USD Technical Forecast

AUD/USD managed to rally higher last week, but much of the pair’s upside was pared at the start of the weekend. The May low at 0.7030 could give way if the bears continue to pressure prices. The 2022 low at 0.6967, the psychological level of 0.7000 and a descending trendline may offer a confluent degree of support should the May low break.

AUD/USD daily chart

Chart created with TradingView

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— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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