Economic data released out of Japan and China pointed towards an economy much slower than current market prices as well as currency crosses suggested. Forex traders have been slow to react to the economic disappointments which mean that there could be a period where prices will catch up with reality. This could result in profit taking in those currency pair which rallied the most over the past few trading days such as the AUDUSD, USDJPY, NZDUSD and USDCAD.
The above four currency crosses benefited from US Dollar weakness which increased after last Friday’s NFP report out of the US which came in slightly weaker than expected. A more dovish than anticipated release by the FOMC minutes added to US Dollar weakness. In addition economic news out of Australia, Canada, and New Zealand boosted extreme price movements in the above mentioned currency pairs.
Japan reported a disappointment in it machine orders during the Asian trading session. Machine order for February contracted by 8.8% from its January figures. Year-over-year machine orders only rose 10.8%. Economists predicted an increase of 17.5% year-over-year while the monthly contraction was expected to be 3.0%. The data looks even worse when compared to the strong January readings where machine order rose 13.4% from December and 23.6% year-over-year.
China reported a bigger than expected trade surplus for March, but the combination which created the surplus were not encouraging. China reported its Match trade surplus at $7.71 billion while economists were looking for a trade surplus of only $0.9 billion. Over the past two month’s China still carries a trade deficit as February’s trade deficit remained unchanged at $23.0 billion.
The reason for the bigger than expected trade surplus came from a plunge in imports of 11.3% where economists expected an increase of 2.4%; February’s imports remained unchanged at 10.1%. Adding to the trade surplus was a drop in exports of 6.6% against expectations for an increase of 4.0%. This marks the second consecutive contraction in exports after February’s huge 18.1% plunge. Forex traders should be aware of a slowing global economy which has not been accurately reflected by several major currency crosses.