How China's Economic Performance Might Affect the Forex Market

A quick look at today’s economic calendar reveals that China’s latest round of data all came in the red. If you’re wondering what this might mean for the forex market, then lemme break it down for y’all.

First, let’s take a look at the freshly released figures. The quarterly GDP, which takes into account the value of all the goods and services produced by the economy during the period, came in line with expectations of 7.0% growth for Q1 2014. This reflects a slowdown from the previous period’s 7.3% GDP figure.

If you’re thinking that this ain’t so bad, you should know that this marks China’s slowest pace of expansion since the aftermath of the financial crisis in 2009. Bear in mind that the Chinese central bank already implemented a bunch of easing efforts in order to spur economic growth, but it looks like these ain’t doing the trick just yet. Of course the Q1 GDP reading is still within the Chinese government’s target growth level… but that’s only because they recently set the bar lower to account for the ‘new normal’ in the economy.

The rest of the economic figures revealed more weak spots, particularly in industrial production and retail sales. The former chalked up a mere 5.6% annualized gain for March, much lower than the estimated 6.9% increase, while the latter showed a 10.2% rise versus expectations of a 10.9% increase. Fixed asset investment was also considerably bleak, falling short of the expected 13.9% gain and coming in at only 13.5%.

Prior to this, China had printed a weaker than expected trade balance earlier in the week, with the surplus shrinking from 60.6 billion USD to a meager 3.1 billion USD for March. Components of the report indicated that exports slumped by 14.6% year-over-year while imports tumbled by an annualized 12.3%.

With business activity, consumer spending, trade and investment all painting a grim economic picture for China, it’s no surprise that forex market participants have started buzzing about a potential global downturn once more. After all, China is the world’s second largest economy and is one of the top dogs when it comes to international trade. Any sign of economic trouble in this country could definitely hurt global growth prospects and send forex traders scurrying to safety!

Riskier assets and higher-yielding currencies might be in for a lot of pain if the safety switch is turned on, as investors could return to the lower-yielding safe-haven currencies like the U.S. dollar and the Japanese yen. And with the commodity-driven nations such as Australia and New Zealand closely linked to China in terms of trade, the Aussie and the Kiwi could suffer a double-whammy.