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Australian Dollar Dives as Chinese PMI Data Buoys RBA Rate Cut Fears

By Eric Andersen
22 March 2012 03:02 GMT

THE TAKEAWAY: Flash China Manufacturing PMI Fell to 48.1 from 49.6 > Traders Sold AUD as RBA Rate Cut Appeared Relatively More Likely > AUDUSD Fell

Australian_Dollar_Dives_as_Chinese_PMI_Data_Buoys_RBA_Rate_Cut_Fears_body_Picture_5.png, Australian Dollar Dives as Chinese PMI Data Buoys RBA Rate Cut Fears

Data released by HSBC showed that the flash China manufacturing purchasing manager index (PMI) fell to 48.1 from 49.6 during the month of February. The figure came amid a trend of data suggesting a slowdown in Chinese economic growth.

A reduction in Chinese manufacturing growth, as hinted by the PMI decline, would indicate shrinking demand for the inputs that are used in the production process. China is Australia’s largest export partner; and Australia, a major exporter of mining goods and raw materials, would certainly be hurt by a slowdown in Chinese growth. Damage to the Aussie export industry would likely warrant action by the Reserve Bank of Australia (RBA) to cut interest rates in order to foster domestic growth.

The lower manufacturing PMI provided impetus for traders to shift their portfolios away from the Aussie dollar, as the data buoyed fears that the RBA might cut interest rates in the near future. In the minutes after the release, the AUDUSD fell from 1.0475 to as low as 1.0382.

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22 March 2012 03:02 GMT