Chinese exports and imports both moderated in July, though they were still up a solid 7.2% and 11.0% respectively from a year ago. Exports were expected to grow by 10.9% after a 11.3% gain in June, while imports were forecast to rise by 16.6% following a 17.2% jump in the previous month.
The sharper slowdown in imports compared to exports led to the trade surplus increasing for the fifth straight month in July. China’s trade surplus with the rest of the world stood at $46.7 billion in July, slightly above expectations of $46.08 billion and up from $42.8 billion in June.
The weaker figures for July have raised some concerns that both external and internal demand may be easing. However, the outlook for global demand remains bullish and China’s economy is anyhow forecast to slow in the second half of this year so a further softening in import growth in the coming months is to be expected.
The Australian dollar – often seen as a liquid proxy for China’s economy due to its export dependency – fell by about 0.3% after the trade figures to around $0.7912 before resuming its uptrend to rise to $0.7942 in European trade. The aussie was earlier boosted by positive business confidence data out of Australia, while concerns about a 2.4% annual drop in iron ore imports by China in July were short lived.
The yuan also shrugged off the disappointing data, as downside pressure continued to ease on the currency following a larger-than-expected increase in China’s foreign currency reserves in July. Foreign exchange reserves rose to a 9-month high, reaching $3.081 trillion in July, beating forecasts of an increase to $3.069 trillion and up from $3.057 trillion in the prior month. The figures indicate the People’s Bank of China has been less active in forex markets in defending the yuan due to a weaker US dollar alleviating the pressure on capital outflows. The central bank has also tightened capital controls and taken measures to curb speculators who had pushed the yuan to an 8½-low back in January.
In a dramatic reversal of fortunes for the dollar/yuan cross, the pair has been in a steady decline since January, depreciating by 3.8% over the period and driving the yuan to a near 10-month high of 6.6960 per dollar today.
