October Trade Surplus Narrows in China as Australian Dollar Stays Subdued

• $105.28 billion: China’s October trade surplus narrows from $133.53 billion as AUD remains under pressure.
• CNY 712.78 billion: China’s October trade surplus contracts sharply from the previous month’s CNY 905.97 billion.
• 84% Fed rate hike odds underpin the US Dollar against major currencies as expectations climb.

AUD/USD trades near 0.6920 during Tuesday’s Asian session. The pair has retreated after gaining nearly 1% the day before. Pressure persists on the Australian Dollar (AUD) following trade balance figures from China, a close trading partner of Australia.

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

Measured in Chinese Yuan (CNY), China’s October trade balance showed a surplus of CNY712.78 billion, below both the previous CNY905.97 billion and the CNY859 billion market projection. Exports increased 28.7% YoY, easing from September’s 29.6% pace. Imports, however, posted substantially stronger growth of 34.7% YoY, compared with 24.6% previously.

A recovery in AUD/USD remains possible if declining safe-haven demand weighs on the US Dollar (USD). Speculation over a potential diplomatic breakthrough between Washington and Tehran has been increasing. Crude oil prices have also fallen to their lowest level since August, reducing inflationary pressure.

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

The October Consumer Price Index (CPI) release, due on Tuesday, leads the upcoming US economic data now in traders’ focus. Headline inflation is forecast to rise from 3.7% to 3.9% year-on-year, with core CPI projected to increase from 2.6% to 2.8%. Following last week’s strong Nonfarm Payrolls report, hawkish comments by Federal Reserve officials, including Richmond Fed President Thomas Barkin and Chicago Fed President Austan Goolsbee, have reinforced expectations for higher rates. The CME FedWatch Tool puts the probability of a Fed rate hike at the December meeting at 84%, up from 76% a day earlier.