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AUD/USD Risks Break of 0.9200 Support on Slowing China Manufacturing

AUD/USD Risks Break of 0.9200 Support on Slowing China Manufacturing

David Song, Gregory Marks,

- China HSBC PMI Manufacturing to Improve for Second Consecutive Month

- Survey Has Held Below the 50.0 Mark Throughout 2014

Trading the News: China HSBC Purchasing Manager Index Manufacturing

Despite the ongoing contraction in China manufacturing, another uptick in the HSBC’s Purchasing Manager Index may generate a meaningful rebound in the AUD/USD as the pair sits at the 0.9200 support zone.

What’s Expected:

AUD/USD China PMI

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Why Is This Event Important:

Positive developments coming out of China – Australia’s largest trading partner – may heighten the appeal of the Australian dollar as the Reserve Bank of Australia (RBA) retains a rather neutral tone for monetary policy, and Governor Glenn Stevens may look to keep the benchmark interest rate on hold throughout the remainder of the year as the central bank head remains upbeat on the $1T economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

MNI Business Confidence Indicator (MAY)

--

53.7

Producer Price Index (YoY) (APR)

-1.9%

-2.0%

Trade Balance (APR)

$16.70B

$18.46B

Easing input prices paired with the rebound in business sentiment may spur a marked rise in productivity, and a positive development may spur a near-term advance in the AUD/USD as it raises the RBA’s scope to move away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Industrial Production (YoY) (APR)

8.9%

8.7%

Retail Sales (YoY) (APR)

12.2%

11.9%

New Yuan Loans (APR)

800.0B

774.7B

Nevertheless, businesses may continue to scale back on production amid the slowdown in household consumption along with the weakening outlook for private sector lending, and a dismal print may pave the way for a larger decline in the AUD/USD as it dampens the outlook for the Australian economy.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: China Manufacturing Exceeds Market Forecast

  • Need green, five-minute candle following the statement for a potential long Australian dollar trade
  • If market reaction favors a long trade, buy AUD/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bearish AUD Trade: HSBC Purchasing Manager Index Disappoints

  • Need red, five-minute candle to consider a short AUD/USD position
  • Carry out the same setup as the bullish aussie trade, just in the opposite direction

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Carves Lower High in May; Need Break & Close Below Support for Further Decline
  • Interim Resistance: 0.9330 (61.8% retracement) to 0.9340 (61.8% expansion)
  • Interim Support: 0.9200 (100.0% expansion) to 0.9220 (61.8% retracement)

Read More:

Price & Time: Gold Gearing Up For A Powerful Move

USD/JPY Tests Yearly Low as BoJ Refrains - On Cusp of Major Yen Rally?

Impact that China PMI Manufacturing has had on AUD during the last reading

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2014

05/06/2014 1:45 GMT

48.4

48.1

-19

+3

April 2014China HSBC PMI Manufacturing

AUD/USD

The April Manufacturing HSBC PMI print for China came in slightly lower than market expectations and sent AUDUSD slightly lower, although the pair recovered loses by the close. Concerns continue to brew out of China in regards to the property sector and any pronounced miss in this print could impact AUD crosses to the downside, especially in the context of technicals that may have signaled a near term top in AUDUSD.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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