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Dollar May Emerge as Winner After Key Manufacturing Data Roundup

Dollar May Emerge as Winner After Key Manufacturing Data Roundup

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Chinese PMI Fails to Yield Sustained Momentum as Traders Pare Rate Cut Bets
  • Eurozone, UK PMI Figures to Reinforce Expectations of Regional Slowdown
  • ISM Manufacturing Gauge at Risk of Disappointing Following Soft Survey Data
  • US Dollar Has Scope to Rise on Haven Demand Amid Global Slowdown Fears

The Australian Dollar outperformed while the Japanese Yen traded broadly lower to start the trading week after official Chinese Manufacturing PMI data printed markedly better than economists expected, boosting risk appetite amid hopes the world’s second-largest economy and key regional growth engine may not experience as sharp of a slowdown as had been feared over recent weeks. Optimism was short-lived however, with Asian bourses shedding early gains to trade relatively flat heading into the European opening bell.

The quick reversal seemed to be linked to the unusually large gap between official PMI figures a closely-watched private sector version from HSBC. The spread between the two measures has average 1.5 index points over recent years compared with a whopping 4.8-point disparity this time around. Indeed, while HSBC data showed China’s manufacturing sector shrank at the fastest pace since January 2009, numbers from China Federation of Logistics & Purchasing argued for the strongest growth in a year.

With this in mind, traders seemed to conclude that the official PMI figure mattered less as a gauge of actual growth – which the HSBC outcome clearly called into question – and more as a monetary policy signal. In this context, a strong reading meant that Beijing was projecting less scope for reducing borrowing costs than markets hoped for to stimulate an economy expected to face significant headwinds as the Eurozone – China’s largest export market – dips back into recession.

Looking ahead, European manufacturing data enters the spotlight. The final revision of March’s Eurozone PMI reading is expected to confirm that the sector contracted at the fastest pace in four months, while UK PMI for the same period sees activity growing at its weakest since December. This bodes ill for risk appetite, where the central theme driving trends in the second quarter is likely to be the degree of global downturn on tap for 2012 after investors spent most of the first three months of the year preoccupied with Euro-area debt woes.

The key consideration in shaping the growth outlook is to what extent a healthier North America can offset slowing performance elsewhere. That brings the US ISM Manufacturing print into the conversation, where median forecasts point to a pickup in March. The risk of a downside surprise seems significant however following uniformly disappointingresults on leading activity surveys released last week. On balance, this sets the stage for a difficult start to the trading week, with risky assets vulnerable to losses and the US Dollar (ticker: USDollar) aiming to capitalize on safe-haven demand as the breadth of acceleration in the US recovery is called into question even as growth cues from elsewhere continue to appear ominous.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

1:00

CNY

PMI Manufacturing (MAR)

53.1

50.8

51.0

2:30

CNY

HSBC PMI Manufacturing (MAR)

48.3

-

49.6

23:01

GBP

Lloyds Business Barometer (MAR)

31

-

1

23:01

GBP

Hometrack Housing Survey (MoM) (MAR)

0.2%

-

0.0%

23:01

GBP

Hometrack Housing Survey (YoY) (MAR)

-1.0%

-

-1.4%

23:30

AUD

AiG Perf of Manufacturing Index (MAR)

49.5

-

51.3

23:50

JPY

Tankan Large Manufacturers Index (1Q)

-4

-1

-4

23:50

JPY

Tankan Non-Manufacturing Index (1Q)

5

5

4

23:50

JPY

Tankan Large Manufacturers Outlook (1Q)

-3

2

-5

23:50

JPY

Tankan Non-Manufacturing Outlook (1Q)

5

6

0

23:50

JPY

Tankan Large All Industry Capex (1Q)

0.0%

0.8%

1.4%

0:30

AUD

TD Securities Inflation (MoM) (MAR)

0.5%

-

0.1%

0:30

AUD

TD Securities Inflation (YoY) (MAR)

1.8%

-

2.0%

1:30

AUD

Building Approvals (MoM) (FEB)

-7.8%

0.5%

1.1% (R+)

1:30

AUD

Building Approvals (YoY) (FEB)

-15.2%

-5.3%

-14.7% (R-)

5:00

JPY

Vehicle Sales (YoY) (MAR)

78.2%

-

31.9%

6:30

AUD

RBA Commodity Price Index (MAR)

99.7

-

97.9 (R-)

6:30

AUD

RBA Commodity Index SDR (YoY) (MAR)

2.7%

-

3.2% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:15

CHF

Retail Sales (Real) (YoY) (FEB)

-

4.4%

Low

7:30

CHF

PMI Manufacturing (MAR)

49.5

49.0

Medium

7:45

EUR

Italian PMI Manufacturing (MAR)

47.6

47.8

Low

7:50

EUR

French PMI Manufacturing (MAR F)

47.6

47.6

Low

7:55

EUR

German PMI Manufacturing (MAR F)

48.1

48.1

Medium

8:00

EUR

Euro-Zone PMI Manufacturing (MAR F)

47.7

47.7

Medium

8:00

EUR

Italian Unemployment Rate (FEB P)

9.3%

9.2%

Low

8:00

EUR

Italian Unemployment Rate (4Q)

8.7%

8.1%

Low

8:30

GBP

BoE Housing Equity Withdrawal (£) (4Q)

-8.2B

-8.6B

Low

8:30

GBP

PMI Manufacturing (MAR)

50.7

51.2

Medium

9:00

EUR

Euro-Zone Unemployment Rate (FEB)

10.8%

10.7%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3299

1.3382

GBPUSD

1.5958

1.6087

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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