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Over the weekend, China reported its trade balance for February. The  world’s second largest economy reported a trade surplus of $60.6 billion, much higher than expected. However,  this surplus is not only a result of strong exports, but a fall in imports.

Australia’s economy is dependent on  commodity exports to China. The data does not bode well for the  Aussie dollar in the wake of the new week. Could we see AUD/USD extend its falls?

Chinese data

Chinese imports fell by 20.5%,  around double the early expectations for a drop of 10%. Now, data for February alone is  always skewed by the exact timing of the Chinese New Year. So, every year, economists look at January and February together in order to get a better picture of China’s performance.

However, imports dropped also in January, by nearly the same scale: 19.9%.  In addition, these are year on year numbers, so it doesn’t look too good for Australia’s prospects.

Exports leaped by 48.3%, much more than 14.2%  expected and more than compensating for a fall of 3.3% in January.

China is trying to diversify away from investment, manufacturing and exports and into more consumption and innovation.  Also Australia needs to rotate from mining to other fields. In both cases, the moves are slow.

AUD/USD

AUD/USD crashed  to support following the excellent US Non-Farm Payrolls. The pair erased the gains and gave up all the  strength seen beforehand, especially as the  RBA refrained from cutting the rates, at least for now.

So, can AUD/USD fall below 0.77 and even set a new multi-year low? The next level of support awaits at 0.7640, and beyond this 2015 low, the 0.75 level is already in sight.

For more,  listen to our latest podcast: What’s next for the Aussie after the RBA “no cut”.

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