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- Australian and New Zealand trade surpluses rising
- Mainly driven by increasing trade with China
- Trade war as yet not impacting as much as expected
The trade war between the U.S. and China might not be having the negative global ripple-effect anticipated, according to recent export data from some of China’s biggest trading neighbours, and this has implications for FX markets.
New Zealand’s trade surplus, for example, came out at NZD264m in May, which was above expectations of NZD250m, and mainly due to a 29% rise in exports to China.
This flies in the face of expectations that a slowing Chinese economy - hit by U.S. tariffs - would in turn reduce demand for New Zealand exports.
Likewise, Australia’s trade surplus reached a record peak of AUD5.02bn in February 2019, and exports to China, which is Australia’s largest trading neighbour, was a contributing factor.
In the three months to, and including April 2019, trade between Australia and China rose 8.4% whilst at the same time trade between Australia and America actually fell -10.4%.
The data may partly explain both the New Zealand and Australian Dollar’s recent resilience since a major factor which had been weighing on these two currencies was concern about how a China slowdown - mainly due to the trade war - might impact negatively on their economies, because they conduct so much trade with China.
In the last week, the Pound weakened most against the outperforming Australian Dollar and New Zealand Dollars.
Both currencies also recovered quite strongly versus the U.S. Dollar.
Of course there are other factors at play when it comes to determining the value of the NZD and AUD.
A reason for New Zealand’s strong performance was the central bank’s decision on Thursday morning to not cut interest rates again, although this may be partly due the RBNZ’s grave concerns about a global slowdown easing marginally due to the better-than-expected trade data.
Although the Chinese economy is slowing down, and this is having a wider impact on the global economy as a whole, it is expected to remain resilient, according to Leland Miller, the CEO of China’s Beige Book, which claims to be the “most comprehensive China data platform ever created”.
“We are seeing better data to what is being officially released right now. And that is because depending on the metric we typically see our data leading the official data by 2-4 months, so we are seeing an uptick,” says Miller.
The support of the Chinese authorities has been a major reason for the Chinese economy’s resilience. The cheap lending policy of the People’s Bank of China (Pboc) has helped provide a boost of credit to keep growth going.
“Manufacturing is interesting. Manufacturing outperformed in our second quarter data but principally because they borrowed more and they borrowed for cheaper. You could see the government’s hand at work. There was clear policy support,” says Miller.
The state of the job market is sensitive to the state of the economy but despite China’s slowdown hiring has remained quite buoyant.
“Retail also outperformed and you saw hiring actually do quite well. And that is important because if the U.S. is really claiming that they are hitting China hard where it hurts you would see a reaction in the job market. You are not seeing that at all. You are seeing it go in the other direction. There is some pain there, and there is a lot of pressure there but at this point, China’s economy is doing well, and it is able to hold its own against Trump for now,” says Miller.
It is possible fears of a Trump-induced China slowdown impacting negatively on the New Zealand and Australian economies may be slightly over-exaggerated, given the trade data, which still shows strong demand from China.
If that is the case, both currencies may become less sensitive to minor changes in trade talks between the two superpowers, and perhaps a more robust trading pattern in the future.
The fact the Chinese economy may be coping better-than-expected could also indicate they may be less willing to do a deal with the U.S. if it crosses any of their ‘red’ negotiating lines.