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THE TAKEAWAY: Australian Dollar builds on gains as China report a trade deficit, a decline in exports and an increase in imports.
The Trade Balance of a country is the difference between the monetary value of exports and imports in an economy over a certain period. A positive value is known as a trade surplus where the value of the exports is greater than imports, and a negative value implies that the value of imports is greater than exports.
March saw the Chinese Trade Surplus of $15.25B in February become a Trade Deficit of -$0.88B as exports fell from 21.8% in February to 10.0% in March and imports rose from -15.2 per cent in February to 14.1 per cent this month. Investors saw this as positive news for the Australian economy and dollar with China being its largest two way trading partner.
Historically, China has maintained a trade surplus, with the value of their exports being generally much great than their imports. The greater than expected rise in imports and the surprising trade deficit although positive for the Australian economy, could drag on China’s GDP. All things being equal, a reduction in trade surplus or a trade deficit will reduce the GDP of China, which means that the PBOC may have less reason to tighten monetary policy.
This data seems to confirm the release of the China CPI numbers yesterday yielding a less than anticipated rise in consumer prices lessening the need for making money ‘tight’ and perhaps adding to the case for expansionary spending.