Ahead of NFP later this week, investors looking for some insight into the strength of the global economy will likely be keenly interested in the trade data from the world’s two largest economies. Particularly considering that the high level of imports into the US is expected to continue to be a drag on growth and intensify into the final quarter of the year.

China has also provided some early signs of a turn around. Last month, it reported that imports finally stopped falling and turned to modest growth. If that pattern were to continue, it might mean that internal demand in the world’s largest importer of raw materials is starting to stabilize. That could be good news in particular for the Aussie, but also for the yen and Kiwi dollar. As usual, the trade data is expected to shake up many of the major currency pairs.

What to Look Out For

First off the line in reporting is the US, with November trade deficit expected to increase substantially to -$64.6B from -$61.5B in October. Imports are seen growing marginally, but exports are expected to fall, which is forecast to be the main driver for the rise in the trade deficit.

This poses a potential drag on economic growth, as a negative trade balance counts against a country’s GDP. The strong dollar through October and the early part of November likely contributed to making it more difficult to sell US products. The reversal of dollar strength through the end of last month might provide some optimism that exports could improve in the final month of the year. But, the wider the deficit, the more investors could be worried about US GDP this quarter.

The Commodity Situation

Next to report is China, which is expected to see its trade balance increase to a surplus of $57.0B compared to $56.5B in October. This is despite exports are seen falling -2.0% and imports increasing 4.0%. Though currency traders might be most interested in the potential for two consecutive months of growth in imports. A relatively small beat could push China’s exports back into growth territory, which could substantially improve the mood of the markets. Concern over slowing global trade has recently supported safe haven flows.

Also reporting on the same day is Australia, which is set to see its trade balance expand into surplus to $8.5B from $6.79B. Demand from China is seen supporting a potential turn around in the trend in exports. The RBA’s recent decisions have pushed up the Aussie and made buying overseas more attractive, which in recent months has hurt the trade surplus. The more dovish statement from the RBA overnight contributed to a decline in the currency, however. A beat in the trade balance might help shore up the Australian dollar, while a miss could mean that the Aussie might have hit a recent peak.

The recent trends in the US dollar have also hurt the commodity situation, as yields have risen and pushed the greenback higher. If that trend continues, it could keep a downward pressure on commodity currencies. Although that could be slightly offset by weaker GDP growth prospects, ironically thanks to a stronger dollar.

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