Australian Dollar stays muted as China’s October Trade Surplus narrows

• China’s trade surplus narrowed to $105.28 billion in October from $133.53 billion, leaving AUD holding its losses.
• At CNY 712.78 billion, China’s October trade surplus was markedly below the previous month’s CNY 905.97 billion.
• With the probability of a Fed rate rise climbing to 84%, the US Dollar remains supported against major currencies.

Following trade balance figures from China, a close trading partner of Australia, the Australian Dollar (AUD) remains on the back foot. AUD/USD is trading lower at around 0.6920 during Tuesday’s Asian session, having gained nearly 1% the day before.

October’s trade surplus fell to $105.28 billion from $133.53 billion, according to the National Bureau of Statistics of China, undershooting market expectations of $125.8 billion for the month. Export growth slowed to 35.2% year-on-year (YoY) from 36.3%, compared with a forecast of 33.5%. Import growth, by contrast, accelerated to 41.6% YoY from 31.0%, exceeding expectations of 32.0%.

Measured in Chinese Yuan (CNY), China’s October trade balance showed a surplus of CNY712.78 billion, down from CNY905.97 billion previously and below the CNY859 billion market forecast. Annual export growth eased to 28.7% from September’s 29.6%. Imports, however, recorded substantially stronger growth of 34.7% YoY, compared with 24.6% previously.

A possible recovery in AUD/USD could nevertheless come from pressure on the US Dollar (USD), as growing speculation over a diplomatic breakthrough between Washington and Tehran reduces safe-haven demand. Crude oil prices have also fallen to their lowest since August, easing inflationary pressures.

Describing the war as "militarily, effectively over", US President Donald Trump said further military strikes against Iran appeared unnecessary. He nevertheless maintained that the US remained "locked and loaded" to safeguard regional stability at the request of neighbouring nations.

The October Consumer Price Index (CPI) report, due on Tuesday, leads the forthcoming US economic releases now in traders’ sights. Headline CPI is forecast to accelerate to 3.9% year-on-year from 3.7%, with the core measure expected to rise from 2.6% to 2.8%. Following last week’s strong Nonfarm Payrolls report, hawkish comments from Federal Reserve officials, including Richmond Fed President Thomas Barkin and Chicago Fed President Austan Goolsbee, have added to expectations of higher interest rates. The CME FedWatch Tool puts the probability of a Fed rate rise at the December meeting at 84%, a sharp increase from 76% a day earlier.