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Chinese Economy Improves, Commodity Currencies Follow

Posted by Joseph Trevisani on Sep 10, 2013 10:40:00 AM

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China's industrial output expanded in August by the most in 17 months, business investment grew more than forecast and the broadest gauge of credit almost doubled as the economic slowdown of the past two quarters responded to government measures.

Factory production climbed 10.4 percent from a year earlier and 9.7 percent in July according to the National Bureau of Statistics. Economists has estimated a 9.9 percent gain. Fixed asset investment in non-rural projects rose 20.3 percent on the year, up from the more than decade low of 20.1 percent in June and July.

Aggregate financing which reports the total liquidity provided to the real economy by the financial system rose to 1.57 trillion yuan ($257billion) in August from 808.8 billion yuan in July, well ahead of the 950.0 billion yuan forecast.

The improvement in Chinese statistics began in the last week of August when purchasing managers’ indexes from the government and private sources reported better than expected results. They were followed by the August trade balance which at $28.52 billion was 60 percent larger than July's $17.82 billion and then September 7th saw the 7.2 percent jump in year over year exports for August, well ahead of the prior month's 5.1 percent increase and the median prediction for  a 5.5 percent expansion.

Traders have taken the improvement in Chinese economic prospects as a direct benefit to the resource economies of Australian, Canada and New Zealand and their currencies have soared against the U.S. Dollar over the past ten days.

The Australian Dollar has gained 4.6 percent, the New Zealand Dollar 3.5 percent and the Canadian 1.9 percent since the end of August. The Australian economy is most closely tied to the mainland as its largest supplier of iron ore and other minerals.

In contrast the euro has seen only a 0.1 percent gain against the dollar despite the substantial trade relations between China and the EMU. Europe is primarily an exporter of finished goods to the mainland and Chinese imports fell in August to 7.0 percent on the year from 10.9 percent in July and were a surprise miss of the 11.3 percent forecast.

Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

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