- The Australian dollar upward momentum continued today after the strong China trade numbers.
- China’s trade surplus soared to more than $78 billion in December.
- The AUD/USD has also been helped by the strong commodity prices.
The AUD/USD is trading near its three-year high helped by the resurgent Chinese economy and higher commodity prices. It is trading at 0.7767, which is 42% above last year’s low of 0.5500.
Strong China economy
The Chinese economy is firing on all cylinders as evidenced by the latest trade numbers. According to the country’s statistics bureau, exports rose by 18.1% in December while imports rose by 6.5%. The two numbers were better than what analysts were expecting.
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As a result, the trade surplus soared to a whopping $78.2 billion in December, higher than the median estimate of $72 billion. For 2020, the country’s surplus soared by 27% to more than $535 billion.
Notably, exports to the United States rose by more than 34.5% while imports increased by 47.7%. For the year, the Chinese surplus with the US was worth more than $317 billion, which is further evidence that Trump’s trade war didn’t work out.
The Australian dollar and the AUD/USD are often viewed as proxies to China because of the two country’s trade relationship. Australia sells about 37% of all its goods to China.
The AUD/USD is also hovering near the three-year high because of the robust commodity prices. In the past few months, major commodities like copper and iron ore have been on a strong upward trend. That helps to support the Aussie because of the role commodities play to the Australian economy.
However, Aussie faces three main risks. First, several Federal Reserve officials have started talking about quantitative easing tapering and higher rates. This could push the US dollar higher and the Aussie lower.
Second, since commodities are typically cyclical, there’s a risk of a reversal in the near term. Finally, there’s a risk that the Reserve Bank of Australia (RBA) will start talking about negative rates.
AUD/USD technical outlook
The AUD/USD has been rallying in the past few months. Along the way, it has formed a narrow ascending trendline that is shown in blue. Also, it remains above the 200-day and 50-day exponential moving averages.
Therefore, in the near term, it seems like bulls will maintain the upward momentum. However, there is also a possibility that the Aussie will reverse. If this happens, the pair could fall back to the support at 0.7412. You can trade this price action with some of the best forex brokers.
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