Insights 
VT 
In October, China’s trade balance recorded CNY640.4 billion, a decrease from the previous CNY645.47 billion. Exports fell by 0.8% year-on-year, while imports rose by 1.4% during the same period.
In USD terms, China’s trade surplus in October was smaller than anticipated. The trade balance was +90.07 billion, below the expected +95.60 billion. Exports grew by 1.1% year-on-year, and imports increased by 1.0%.
Aussie Dollar Weakens
The AUD/USD currency pair dropped 0.09% in reaction to these figures, trading at 0.6473. Over recent days, the Australian Dollar weakened against major currencies, notably the Japanese Yen.
Median expectations for China’s trade balance in October predict widening to $95.60 billion. Projected export and import growth is placed at 3% and 3.2%, respectively.
AUD/USD showed upward movement due to a softer USD, influenced by US labour market data. If China’s trade data exceeds expectations, it could bolster the AUD, testing resistance levels.
Key drivers for the Australian Dollar include interest rates, iron ore prices, and China’s economic performance. Changes in these factors can significantly impact the AUD’s value relative to global currencies.
Downward Pressure on the Australian Dollar
Given the disappointing Chinese trade figures from October, we see a clear signal of slowing global demand that was worse than anticipated. The immediate drop in the AUD/USD is a logical reaction, and we should expect this pressure on the Aussie dollar to continue in the coming weeks. This isn’t a one-off data point but a confirmation of a weakening trend.
This view is strengthened by other recent data showing China’s Caixin Manufacturing PMI for October 2025 dipped to 49.5, falling into contraction territory for the first time in six months. This indicates that factory activity is shrinking, which directly explains the slump in import growth for industrial commodities. We are treating the 1.0% import growth figure as a leading indicator of further industrial weakness.
Consequently, we are watching iron ore prices very closely, as they are critical for the Australian dollar’s valuation. After a period of strength, prices have recently fallen below $120 per tonne on the Singapore Exchange as major Chinese steel mills revise their production forecasts downward for the first quarter of 2026. This fundamental pressure on Australia’s key export will act as a significant headwind for the AUD.
Looking at the monetary policy outlook, this weak external environment changes the calculus for the Reserve Bank of Australia (RBA). After the aggressive rate hiking cycle we saw through 2023 and 2024, the market will now begin to price in a higher probability of RBA rate cuts in the first half of 2026. This policy divergence with a still-cautious US Federal Reserve should further weigh on the AUD/USD pair.
For derivative positions, we believe buying AUD/USD put options with January 2026 expiry is an effective strategy to position for further downside. Targeting strike prices around the 0.6400 psychological level offers a good risk-reward profile, capturing a potential slide towards lows we haven’t seen since mid-2024. Implied volatility is likely to increase, so establishing these positions in the near term is advisable.
Furthermore, we see an opportunity in currency crosses, particularly in shorting the AUD/JPY pair. As concerns about China’s economy ripple through global markets, risk aversion typically boosts the Japanese Yen as a safe-haven currency. This trade allows us to capitalize on both Australian dollar weakness and a broader flight-to-safety sentiment.
