China Exports Surge 7.1% in February Signaling a Demand Shift

China trade data for February garnered investor interest on Thursday. The trade data follows weaker-than-expected Caixin Services PMI numbers for February. Significantly, the economic indicators likely drew the interest of investors and the National People’s Congress.

China Reports a Surge in Exports, Signaling a Shift in the Demand Environment

China saw exports surge 7.1% year-on-year in February after increasing by 2.3% year-on-year in January. Economists forecast exports to increase by 1.9%. Imports rose by 3.5% year-on-year after increasing by 0.2% in January. Economists expected imports to increase by 1.5%.

As a result, the US dollar trade surplus widened from $75.34 billion to $125.16 billion.

The better-than-expected trade figures drove buyer demand for the Aussie dollar. China accounts for one-third of Australian trade. Australia has a trade-to-GDP ratio of over 50%, with 20% of the Australian workforce in trade-related jobs. A pickup in demand would be a boon for the Australian economy and the Aussie dollar.

China, Trade, and the RBA Rate Path

Significantly, an improving Chinese economy could influence the RBA interest rate trajectory. In February, RBA Governor Michele Bullock affirmed that RBA staff included China’s economic woes in the RBA growth forecasts. A more robust economic outlook could raise growth forecasts and impact bets on an RBA rate cut.

AUD/USD Reacts to Trade Data from China

Before the trade data from China, the AUD/USD fell to a low of $0.65601 before rising to a high of $0.65780.

In response to the trade data, the Aussie dollar dipped to a low of $0.65735 before reaching a high of $0.65780.

On Thursday morning, the Aussie dollar was up 0.19% to $0.65763.

Earlier in the Thursday session, trade data from Australia also drew investor interest.

Australian Trade Surplus Widens in January

The Australian trade surplus widened from A410.959 billion to A$11.027 billion in January. Economists forecast a trade surplus of A$11.500 billion. Exports increased by 1.6% month-on-month after rising by 1.8% in December.

According to the ABS,

• Non-monetary gold exports surged 18.2% in January month-on-month, offsetting a 12.5% slide in the net exports of goods under merchanting. General merchandise exports increased by 0.5%.
• Imports of goods increased by 1.3% month-on-month in January. Consumption goods (+5.2%) and capital goods (+5.9%) imports fueled a jump in January imports.

USD/JPY Under Selling Pressure on Monetary Policy Divergence

On Thursday, the USD/JPY was down 0.40% to 148.746. Wage-related data from Japan raised bets on a Bank of Japan pivot, pressuring the USD/JPY pairing.

Average cash earnings increased by 2% year-over-year in January after rising by 1% in December. Economists expected average cash earnings to increase by 0.5%. Overtime pay was up 0.4% year-on-year after a 0.7% decline in December.

The Bank of Japan needs higher wages to fuel household spending and demand-driven inflation. Demand-driven inflation would allow the BoJ to pivot from negative rates to ensure price stability.

However, the stronger Yen impacted the Nikkei 225. On Thursday, the Nikkei was down 0.90% to 39,731.