China International Capital Corporation (one of China’s largest investment banking and research services companies) research note in the wake of yesterday’s record trade balance (bolding is mine):
- The record trade surplus that brought sizable FX inflows will help ease China’s domestic liquidity, if there are no massive outflows from capital account
- Exports growth may quicken in September (due to the low comparative base a year ago)
- Says the steady relationship between yuan and dollar means a stronger Dollar Index in coming months may add pressure on yuan’s REER to appreciate, although negative effect on China’s exports may be lagged
- Decline in imports mainly due to weak domestic demand and falling commodity prices
- External demand continues to support growth while domestic demand stays weak; imports of processing trade, which used for re-exports, show better growth than conventional imports
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Likely a positive input for the Australian dollar
