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Australian Dollar Declines More Than 1 Percent In Morning Trade

Australian Dollar Declines More Than 1 Percent In Morning Trade

Daniel Dubrovsky, Contributing Senior Strategist

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Talking Points:

  • Australian Dollar declines more than 1 percent versus the US Dollar in morning trade Friday
  • China’s July Preliminary PMI reading fell to 48.2 versus 49.7 expected and 49.4 in June
  • Standard & Poor's says it could lower Australia’s credit rating unless budget conditions improve

The Australian Dollar fell more than 1 percent in Friday morning trade against its US counterpart to extend its slide to a fresh 6-year low. The drop started after China’s manufacturing PMI figure for July crossed the wires. The indicator dropped to 48.2 versus the 49.7 expected - that is the lowest level seen since April 2014. A reading below 50.0 is indicative of a contraction for the sector – vital for Chinese growth and Australian exports. Following the release, the pair declined more than 0.5 percent.

Later, rating agency Standard & Poor’s (S&P) commented on Australia’s sovereign credit rating. It affirmed a stable ‘AAA/A-1+’ rating outlook. However, it would also warn that it may lower the rating should the country’s budget not move beyond its gridlock. Following the comments, the Aussie extended its decline an additional 0.4 percent, bringing losses to over 1 percent on the day.

Recently, the Reserve Bank of Australia maintained a neutral monetary policy stance that it indicated would be data dependent. Since China is Australia’s largest trading partner, a slow-down in the manufacturing PMI could further hamper growth in Australia. In addition, the comments from the ratings agency deflated the country’s near-sterling risk position. In response,10-year Australian government bond yields declined after the combined event risk. This suggests that the events are building RBA rate cut bets.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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