China August trade data due: export beat may support risk currencies

If China's export figures come in above expectations, it would underline the economy's growing dependence on foreign demand as a substitute for weak domestic activity. That trend has persisted even as it draws increased scrutiny from major trading partners. A better-than-expected import number, meanwhile, would be viewed more positively, since it would indicate stronger internal consumption rather than merely assembled goods for re-export. Such an outcome tends to have a greater impact on commodity-exposed currencies, including the Australian dollar. Underperformance on either front would reinforce worries that August's still-soft manufacturing PMI is a truer reflection of economic momentum than the trade numbers suggest.

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The upcoming data release will indicate whether exports can continue propping up an economy where domestic consumption remains insufficient.

• August exports are projected to increase 25% year-on-year, accelerating from 23.9% in July
• Imports are seen rising 30% year-on-year, up from 27.5% in July
• The trade surplus is forecast to expand to roughly $119.05 billion, compared with $112.5 billion in July
• Exports have become a critical support for growth as domestic spending and investment stay weak
• China's GDP grew 4.3% in the second quarter, against a full-year target of 4.5-5%
• August's official manufacturing PMI showed improved but still modest activity, while the private PMI was stronger, marking the longest expansion in five years

China is set to publish its August trade numbers today, with analysts predicting another rise in export growth even as the domestic economy shows ongoing weakness. A Reuters poll forecasts exports up 25% year-on-year, following July's 23.9% increase, while imports are expected to climb 30% year-on-year after 27.5% the previous month. The trade surplus is predicted to widen to around $119.05 billion from $112.5 billion in July.

The expected pattern mirrors what has been seen throughout the year. Exports have increasingly served as the main driver of Chinese growth, given sluggish household consumption and a prolonged investment downturn that weigh on the broader economy, Reuters reported. This dependency brings its own challenges: sustained export strength reduces pressure on Beijing to tackle weaker sectors such as property, while keeping trade disputes with major economies in the spotlight.

The broader growth picture provides context for the release. China's economy grew 4.3% in the second quarter, a deceleration from the start of the year, making the official 4.5-5% annual target harder to achieve without improvement elsewhere. August's official manufacturing PMI offered some positive news, with activity picking up from July even though it remained in lacklustre territory, suggesting the domestic economy is stabilising rather than recovering strongly.

For financial markets, the import reading may carry more significance than exports. A stronger import figure would suggest a genuine increase in domestic demand, not just re-exported parts, and is typically viewed favourably by commodity-linked currencies such as the Australian dollar, given trade ties between the two countries. A strong export number without a corresponding rise in imports would likely be seen as continuing the year's existing pattern: an economy heavily reliant on external demand while internal momentum remains weak.