In October, China’s trade balance was CNY640.4 billion, down from CNY645.47 billion. Exports dipped by 0.8% compared to last year, while imports grew by 1.4%. In USD, China’s trade surplus for October was less than expected. The trade balance stood at +90.07 billion, missing the forecast of +95.60 billion. Year-on-year, exports rose by 1.1%, and imports went up by 1.0%.

Aussie Dollar Weakens

The AUD/USD currency pair fell by 0.09%, trading at 0.6473 after these reports. Recently, the Australian Dollar has lost ground against major currencies, especially the Japanese Yen. Market predictions for China’s trade balance in October suggested it would widen to $95.60 billion, with expected export and import growth of 3% and 3.2%, respectively. The AUD/USD saw some gains due to a weaker USD, influenced by US labor market data. If China’s trade data outperforms expectations, the AUD could strengthen and test resistance levels. Key factors affecting the Australian Dollar include interest rates, iron ore prices, and China’s economic health. Any changes in these areas can significantly impact the AUD’s value against other currencies.

Downward Pressure on the Australian Dollar

The disappointing Chinese trade figures from October indicate slowing global demand that was worse than expected. The immediate drop in the AUD/USD was a natural response, and we can expect this pressure on the Aussie dollar to continue in the coming weeks. This is not just a single data point; it’s a sign of a broader weakening trend. This viewpoint is backed by other recent data. China’s Caixin Manufacturing PMI for October fell to 49.5, entering contraction territory for the first time in six months, showing factory activity is declining. This drop explains the slowdown in import growth for industrial goods, and we see the 1.0% import growth as a sign of further industrial weakness. We’re closely monitoring iron ore prices, as they are vital for the Australian dollar’s worth. After a strong period, prices have recently dropped below $120 per tonne on the Singapore Exchange. Major Chinese steel mills are lowering their production forecasts for the first quarter of 2026, putting additional pressure on Australia’s key export, which could hinder the AUD. Regarding monetary policy, this weak external environment alters the outlook for the Reserve Bank of Australia (RBA). Following aggressive rate hikes in 2023 and 2024, the market may soon anticipate RBA rate cuts in the first half of 2026. This divergence from the cautious US Federal Reserve could further weaken the AUD/USD pair. For derivative positions, buying AUD/USD put options expiring in January 2026 is a smart move to prepare for more declines. Targeting strike prices around the 0.6400 level offers a favorable risk-reward ratio, as it captures a potential drop to levels not seen since mid-2024. With implied volatility likely increasing, it’s wise to establish these positions soon. Additionally, there’s an opportunity in currency pairs, particularly by shorting the AUD/JPY. Concerns about China’s economy tend to elevate risk aversion, which boosts the Japanese Yen as a safe-haven currency. This trade allows us to benefit from both Australian dollar weakness and a general flight-to-safety trend. Create your live VT Markets account and start trading now.

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