All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Could Decline in China's Trade Mean Trouble For The Dollar?

Last updated 3/11/2009 4:12 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

China’s trade surplus narrowed to $4.8 billion, against expectations of $27.3 Billion as imports fell 24.1% from a year earlier. This was the fourth straight month of decline in China’s trade balance, but today’s data was particularly shocking as it dropped to only one eight of the amount of  the previous month.

Chinese authorities have tried to combat the collapse in global demand by increasing domestic investment including tripling railway spending and approving at least $35 billion of additional energy projects. However with nearly 30% of all Chinese goods produced for the external market, exports remain a critical component of the country’s economy  and today’s massive decline in trade numbers augurs poorly for future growth.

More importantly the sharp decline in export income is likely to translate into much weaker growth in foreign exchange reserves going forward. That in turn could greatly temper Chinese investment activities, just as US is seeking record amounts of capital to finance its stimulus package. Today’s meeting between Treasury Secretary Geithner and Chinese Foreign Minister Yang Heichi should be of interest to the currency markets, although it’s doubtful that either gentleman will offer any commentary beyond rote support for stimulus plans already announced.

The initial reaction to the disappointing Chinese trade news was a sharp selloff in commodity currencies and a rally in the dollar on safe haven bid dynamics. However, the dollar safe haven trade could become suspect if persistent declines in export revenue, begin to curtail China’s demand for US Treasury securities.  For now, the currency markets assume that US deficit financing will proceed without a problem this year, but today’s shocking decline in Chinese trade balance numbers suggest that the current consensus view may be much too sanguine.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.