Asia Today: Oz trade data shocker keeps the AUD under pressure

We had the services PMI on the radar this morning but it was the Oz trade data for August that really grabbed the headlines - and what a shocker it was!

Having posted a small initial surplus in June, (+A$9.0 mln, but revised down to a A$791 mln deficit), Australia’s trade performance has deteriorated dramatically with August showing a deficit of A$2.02 bln, the largest since A$2.08 bln in March 2010, as falling iron ore and coal prices ate into total exports, just as China imports slow. Exports to China in August were the lowest in 4 months but exports to other destinations held up relatively well. Total exports were down 3.3 percent, led by a 7 percent drop in metal ores and an 11 percent decline in coal exports. Imports were down a slower 1.3 percent, mainly due to 13 percent drop in oil imports. The downward revision to the past 4 months of data added to the pessimism.

AUD pushed lower after the data, hitting a one-month low versus the US dollar and just below the 100-day moving average (though we have had 2 false breaks of this average in the last 2-1/2 months). We also came close to the September low in AUDJPY while EURAUD hit its highest since mid-June.

Service sector PMIs also underwhelmed with Australia’s sinking to 41.9 from 42.4, the lowest since April and the eighth month below the key 50 threshold. The index’s gauge for sales edged up to 37.8 from 35.8, the employment indicator improved to 48.4 from 47.6 but new orders slid to 36.9 from 38.6. Selling prices and wages components were marginally higher than the previous month.

The data from China was just as depressing, though at least still above the 50 contraction/expansion threshold. China services PMI slid to 53.7 from 56.3 as economic activity slowed and was the slowest pace of expansion since March 2011 when data compilation started. The China holiday for the whole of this week will no doubt ensure that next month’s data will struggle to stage any recovery.

The EUR recovered from an early dip on the back of weak Spanish jobless data yesterday with strong demand seen sub-1.29. However, the rebound met resistance in the mid-1.29s after Spanish PM Rajoy announced that an official bailout request was not imminent. In addition, Moody’s commented that it estimates Spanish banks’ capital shortfall at €105 bln, almost double the government’s estimate. Hence, EUR traded in less than a big-figure range throughout the session.

GBP felt the pressure from a weak construction PMI reading and downbeat Nationwide UK house prices. AUD continued to drift lower following the RBA’s 25bp rate cut and dovish statement yesterday. US data flows were slow with only the ISM for New York released – it showed a mild improvement to 52.9 from 51.4. Wall Street had a non-descript day and ended almost flat.

Data Highlights

• US Sep. ISM New York out at 52.9 vs. 51.4 prior
• US Sep. Total Vehicle Sales out at 14.88m units vs. 14.5m expected and 14.46m prior
• UK Sep. BRC Shop Price Index out at +1.0% y/y vs. 1.1% prior
• AU Sep. AiG Performance of Service Index out at 41.9 vs. 42.4 prior
• China Sep. Non-manufacturing PMI out at 53.7 vs. 56.3 prior
• AU Aug. HIA New Home Sales out at -5.3% m/m vs. -5.6% prior
• AU Aug. Trade Balance out at –A$2027 mln vs. –A$685 mln expected and revised –A$1530 mln prior

Upcoming Economic Calendar Highlights

(All Times GMT)

• Sweden PMI Services (0630)
• GE PMI Services (0755)
• EU PMI Services (0800)
• UK PMI Services (0830)
• EU Euro-zone Retail Sales (0900)
• US MBA Mortgage Applications (1100)
• US ADP Employment Change (1215)
• US ISM Non-manufacturing (1400)

For more information on today’s events, please visit the financial calendar