Chinese Exports Crash due to Holiday, AUD Lower

A shockingly weak Chinese trade balance report sent a shiver through the markets on the weekend. Last week, the Australian dollar led and the yen lagged. Japanese GDP and trade data is up early in the week. Jaws dropped after the February trade data from China as the country posted a nearly $23 billion monthly deficit compared to a $14 billion surplus expected and a nearly $32 billion surplus in January. Following Friday's pre-NFP moves, the latest Premium Insights had 1 of 2 EURUSD longs hit final 1.3900 target (1.3750 entry), 2nd NZDUSD long hit all targets, 1 USDJPY long awaits at 103.80, 1 GBPUSD long in progress, 1 of 2 EURJPY longs hit final 143.30 target (140.30 entry). AUDCAD and AUDNZD remain in progress. All trades and charts are in the latest Premium Insights.

The numbers will weigh on the Australian dollar in early trading but there are reasons not to panic. First, the lunar new year skews trading in February, pushing orders forward. Second, the weakness was all in exports. Chinese imports were up 10.5% y/y compared to a 7.6% rise expected and that continued buying from importers suggests they see demand in the pipeline. On the other hand, the 18.1% y/y drop in exports suggests they may have misread the global marketplace.

It's tough to imagine that global trade plummeted so severely in February but traders will now be keeping an extra-close eye on the numbers.

The good news for China is that CPI was at 2.0% y/y compared to a 2.1% rise expected. Softer inflation gives officials some latitude to stimulate the economy if economic data continues to slide.

On net, the market could overreact to the Chinese data and provide an opportunity to buy the Australian dollar. In early trading, AUD is down 15 pips but liquidity is thin.

The situation in Ukraine should also provide a boost to risk trades. There were no major developments or shots fired on the weekend. Heading into Friday's close some traders were hedging or closing out positions to cut risk.

Trade data continues to roll out with Japanese current account numbers at 2350 GMT and the final reading on Q4 GDP at the same time.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +23K vs +14K prior JPY -79K vs -85K prior GBP +30K vs +29K prior AUD -41K vs -39K prior CAD -61K vs -59K prior CHF +2K vs +1K prior NZD +13K vs +11K prior