Talking Points:
- AUDUSD climbed more than 0.3% in morning trade
- China PMIs print slower-than-expected contraction
- RBA rate cut bets fade as 2-year bond yields climb
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The Australian Dollar initially rallied more than 0.18 percent against its US counterpart after China released its official Manufacturing PMI figure. The 49.8 reading topped the 49.7 print forecasted for September. Forty-five minutes later, the finalized Caixin Manufacturing PMI also topped estimates coming in at 47.2 compared to the 47.0 consensus. Overall, the Aussie rallied more than 0.3 percent an hour after the first PMI reading.
It is important to note that a level above 50 indicates growth in the manufacturing sector while a reading below 50 shows contraction. The official PMI reading of 49.8 showed that China’s factory sector shrank at a slower pace than in August (49.7). The Caixin Manufacturing PMI reading of 47.2, though higher than the 47.0 preliminary, is still at its lowest level in 6 years.
Much of Australia’s export demand comes from China, its largest trading partner. Contraction in China’s manufacturing sector can create less demand for Australian goods. This in turn can boost RBA rate cut bets. Even though most of the data showed a slowdown, Australian 2-year government bond yields climbed in the aftermath of the PMI releases. Perhaps this was a result of a slower-than-expected Chinese contraction. With the Reserve Bank of Australia expected to cut rates at least once over the next 12-months, today’s data appeared to show that the markets are less certain of one in the near-term.
