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The Australian dollar had a difficult week, unable to capitalize on the weakness of the US dollar. The next week could see more weakness.

China released its trade balance figures. While the headline figure came in within expectations, the details are certainly worrying: a dramatic slowdown in export growth and a small drop in imports. This doesn’t bode well for the Australian economy.

Trade balance for May showed a nice surplus of 20.4 billion, a bit lower than 20.8 billion expected. It was higher than 18.2 billion in the previous month.

Exports rose by only 1% year over year: expectations stood on +7.4%, and the figure for April was 14.7%. This shows there is much less demand for Chinese exports.

Imports are doing even worse: they dropped by 0.3% contrary to expectations for a rise of 6.6% and a previous figure of 16.8%.

The drop in imports could be a result of lower Chinese demand or a reduced need for raw materials that Australia sells to China. The bottom line is worrying for Australia (China is Australia’s No. 1 trade partner) and also for the global economy.


China will release more important figures on Sunday: fixed asset investment, industrial production, retail sales and inflation numbers. CPI is rising at a Western rate of 2.4%, but PPI is negative: -2.6%. Industrial output will be eyed.

AUD/USD closed the week at 0.9493, just below the round 0.95 line and below the previous low of 0.9527. However, it did manage to recover from the post NFP lows of 0.9427, and maintains a safe distance from the critical support line of 0.9388 – this was the bottom in October 2011, and now serves as critical support.

A fresh AUD/USD forecast for the week of June 10-14 will be published during Sunday, in the Aussie dollar section, before markets open.