Chinese trade surplus edged up in June, following a surge in exports in emerging markets. Better-than-expected trade balance numbers support further growth.
The Chinese economy is closely monitored by the macro community. Traders and investors look for signs of slowdown or growth and how they may affect the global economy.
Recent trade balance data showed that the surplus edged higher in June, led by an increase in exports to emerging markets. Equally interesting, Chinese exports to the United States declined in June, but increased to Europe.
The trade balance shows the difference between exports and imports. When the value of exported goods exceeds that of imported goods, the trade balance is in surplus. If not, a deficit is recorded.
How Does the Chinese Trade Balance Impact the Currency Market?
The trade balance reflects export demand. This is directly linked to currency demand because foreigners must pay for the goods with the local currency.
The positive economic data has spillover effects because the Chinese economy is seen as the world’s “manufacturer”. The Chinese economy experienced incredible growth in the last two decades, producing some of the fastest growth rates in the world.
Its economic boom meant an increase in imports of raw materials, for example, most of them from Australia. For that reason the Australian dollar is often directly correlated to Chinese economic performance, and so while traders have a difficult time speculating on the Chinese yuan, the Australian dollar is free-floating.
Unfortunately, the Chinese economic data is often not accurate. The closed system makes it difficult for foreigners to estimate the true nature of economic growth there.
Solid global demand made it possible for Chinese exports to grow much faster in June. If the trend continues into the second half of the year, it will have positive spillover effects for global growth.