Aussie Falls as China Continues to Overheat

The Aussie fell against the U.S. dollar on Monday as more signs point to the overheating of China's economy. At around 5:50 am GMT, the greenback continued its march towards parity with the Aussie, rising 0.42% to trade around 0.9337. The Aussie has been hurt by a string of disappointing data from China over the weekend. The Asian Dragon is still

, which rose to 6.4% in June (month-over-month), its highest level in the last three years. It seems that more rounds of monetary tightening are on their way in China. The recent rounds of monetary tightening seem to start to take their effects on the Chinese economy, however, as the Chinese economy reported signs of a slowdown in its economic activity. The latest

showed China's imports grew by 19.3% in June, a sharp slowdown from 28.4% in May. At the same time, exports increased by 17.9% in June, slightly down from 19.4% in May. China is the world's largest consumer of raw materials. The Australian economy, which is a major exporter of commodities, has increasingly come to rely on the Chinese economy to provide steam for its economy. Signs of a slowdown in China, especially of the Chinese imports, will have a lot of analysts worried that reduced economic activity in Asia's largest economy will take its toll on the Australian economy as well. To make matters worse, the Australian government is adding fuel to the fire. Over the weekend, the Australian government announced plans to impose carbon taxes on

. The problem is that some of Australia's worst polluters are also its major exporters, especially in the mining sector. Australia is among the largest emitters of greenhouse gases per head in the developed world and the government is trying to change it by reducing its greenhouse emissions by 5% in 2020, compared to the 2000 level. With Australia's economy struggling to make a full recovery from the Queensland floods and China's economic expansion slowing down, many analysts will be left wondering if PM Julia Gillard picked the right time to impose austerity measures on some of Australia's most important exporters. More evidence that Australia's recovery is fragile came from home loans data. In May,

rose 4.4% compared to the previous month, which is below 4.6% recorded in April and 4.5% expected by most analysts. The Aussie was also not helped by falling prices of commodities. Gold and natural gas made small gains in today's trading, as gold rose 0.06% to $1,545.35, while natural gas added 0.09% to its value to trade around $4.224. On the other hand, crude oil and silver made more substantial losses. Crude oil fell 0.9% to $95.66, while silver lost 0.47% of its value to stand around $36.52. The price of copper was slightly down as well, falling 0.07% to $4.401. The Chinese slowdown helped push back the value of Kiwi as well, as the greenback rose 0.44% to 1.1988. Like Australia, New Zealand is a major commodity exporter, whose economic performance increasingly depends on the strength of the Asian Dragon.

Traders who believe that the slowdown in China and carbon taxes will hurt the performance of Australia's economy, providing a significant headwind for the Aussie, might want to consider the following trades:

Traders who believe that China's economy will continue to expand rapidly, helping Australia make a full recovery from the Queensland floods, may consider an alternate positions: