China’s Trade Balance surged in the month June rising to 31.7 Billion dollars versus 24 Billion eyed, but the headline number was largely due to a sharp decline in imports which increased by on 6.3% versus 11.0% forecast. The sharp falloff in imports raised concerns of a broader slowdown in domestic demand, suggesting that growth in the world’ second largest economy may be decelerating markedly.

Traders initially spiked the Australian dollar but quickly pulled in their bids as the sharp drop in imports trumped the relatively healthy gains in exports which rose 11.3% from a year ago. Recent Chinese PMI data suggests that demand is likely to soften going forward. Still, today’s Trade data delivered very respectable results with the headline number posting its highest reading in nearly 4 years.

The Trade Data report indicates that exports remain healthy despite on going credit problems in the EZ and unless the situation in Europe deteriorates significantly, Chinese economy should only see a modest slowdown in demand.

The AUD/USD sold off its pre-release highs but remained near the 1.0200 level as traders digested the news. The pair may remain under a small amount of pressure on the weaker import data, but could mount another run at the 1.0200 level if risk flows stabilize later in the day.