Economic Insights
China’s exports grow sharply in April
China’s exports growth surged to 14.7% YoY in April from the previous 10% in March. Meanwhile, imports also grew 16.8% YoY last month from a previous 14.1%. The sharp rebound in exports lifted the trade balance to USD18.16 billion, recovering from a USD0.88 billion deficit in March.
The mere data itself reflects better global and domestic demand in April, implying less risk premia around the world and a stable status in the Chinese economy, and possibly avoiding a deteriorating 2Q growth figure. China’s enterprises seem to maintain their competitive position despite further Yuan appreciation and rapid wage growth.
As I mentioned earlier, the macro environment still looks quite manageable compared to the previous few years, despite the Cypriot saga and slow Chinese 1Q growth.
The Asian market edged higher after the Chinese trade data release since there were few cheerful clues recently. Morgan Stanley Capital International (MSCI) Asia Pacific Index rose to its highest level since June 2008; the gain was largely due to the central banks’ stimulus. The Shanghai Composite Index rebounded above the 2250 line, and the Aussie traded toward 1.019 against the Greenback.
Source: Yahoo Finance
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Reserve Bank of Australia (RBA) intends to narrow gap between currency and commodities
The RBA unexpectedly lowered the interest rate to a historically low level at 2.75%, suggesting that the Aussie is still overvalued in the central bank’s view. Although RBA governor Glenn Stevens didn’t accuse its currency value for the 25 bps cut, the intention was clearly for benefiting resource sectors, and to avoid standing in a disadvantaged position as aggressive monetary policy continues around the world in the so-called “currency war.”
The central bank’s governor also commented that the exchange rate barely changed from its historically high level in the past 1.5 years, which is unjustified given the exports and commodities price drops.
The key motivator for the RBA’s decision yesterday was still the trade-weighted index (TWI) approach, which the Reserve Bank of New Zealand (RBNZ) adopted as well. The Aussie TWI basis surged to a multi-decade high in April, putting concern on the weak resources sectors. Yet, inflation is at the lower band of the RBA’s target zone.
Commodity price lost correlation with the Aussie this year. Thus, the central bank lowered the benchmark interest rate by another 25 bps, aiming to narrow the Aussie-commodity gap.
From the RBA’s statement, we can see the central bank is satisfied with the effect of the cumulative 200 bps cut since late 2011 and views it as a successful monetary policy. At the same time, shipment to China reached AUD7.4 billion in March, a 17% MoM growth and 23% YoY. However, traction was still unclear in my point of view, since the rate cuts seem to benefit the financial sector more than the real economy.
Currency Insights
USDJPY – Remain with the 100 level as the key resistance
As I mentioned yesterday, the latest round of the USDJPY rally was purely due to strong U.S. labor releases, both in jobs added and in the unemployment rate, not catalysts from Japan.
On Japan’s side, the USDJPY reached as low as 98.65 earlier this morning, as investors pay extreme attention to the inflation print and 1Q showed a disappointing result. It spurred earlier worries that monetary policy alone could have limited impact on boosting inflation to its target.
From the technical approach, the 100 level remains the key resistance for the USDJPY. It might be difficult to penetrate if there is no significant money base increase or domestic inflation improves to support Bank of Japan Governor Haruhiko Kuroda.
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