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Foreign Exchange Optimism Rises as China Records Bumper Trade Surplus

Market CommentaryForeign Exchange Optimism Rises as China Records Bumper Trade Surplus

by Peter Lavelle

Welcome to the Pure FX account of the latest changes in the foreign exchange rates.

This is intended as a brief guide to movements in the exchange rates overnight, to help put you in the best position for when you exchange currencies.

Australian dollar

Aussie soars as China smashes trade forecasts

Back in the fast lane for the world’s second largest economy? The Australian, New Zealand and Canadian dollars all leapt against the pound overnight, as China racks up a bumper trade surplus in December. China’s trade surplus reached +$31.6 billion last month, way above forecasts for +$19.7 billion. This suggests the Asian tiger’s recent ‘slow patch’ is now over.

Why did this lift the Australian dollar and co.?

The Aussie, kiwi and loonie dollars each received a boost from this data, because they’re what we call ‘commodity currencies.’ This means their economies depend on foreign demand for their commodities, like oil or coal, to expand. Now, with China expanding so fast, it eats up commodities a mile a minute. That then lifts Australia et al.’s economies, and their currencies too.

Coming up

Germany raises eyebrow at Cypriot money laundering

The euro could be due a fall looking ahead, as a German bailout of Cyprus’s banking sector hangs in the balance. The trouble is this: it appears Cyprus’s banks have been helping Russian customers launder their money, facilitating tax evasion. Given that, Germany is now liable to say, “Well, why should we bail you out?” And that puts Cyprus’s future in the Eurozone in doubt.

BoE and ECB due to deliver interest rates decisions

In addition, the market will have its eyes trained on the Bank of England and European Central Bank today, as both central banks make their latest interest rate decisions. Neither central bank is expected to take action, though there’s an outside chance of the ECB cutting interest rates, from their current point of 0.75%. If so, that would pull the euro down.

What do you think the two central banks will do today? Do you think, for instance, that the Bank of England should add more stimulus to the UK economy? And is an ECB rate cut due? Let us know your thoughts in the comments.

Find out more

I’ll return with my next foreign exchange market update tomorrow. In the meantime:

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Yours kindly,

Peter

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