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THE TAKEAWAY: Weaker manufacturing sector > Decreased demand for raw materials > AUD weakens

China’s manufacturing PMI, a general indicator of the overall Chinese manufacturing and industries sector, failed to beat expectations and fell to its lowest level since February 2009. The June figure came in at 50.9, lower than a surveyed 51.5 and previous 52.0. A reading of above 50 means the sector is expanding, while a figure below 50 would indicate a shrinking manufacturing economy.

Chinese_PMI_Fall_Sharply_body_Picture_5.png, Chinese PMI Falls, Softening Australian and New Zealand Dollars

Chinese Manufacturing PMI. Chart generated with Bloomberg LP Professional Terminal.

A confirmed slowing Chinese manufacturing sector, which currently accounts for over 35% of China’s output and the driver behind China’s growth, hurt the Australian dollar. Australia is currently the largest raw materials supplier of China, providing iron ore and energy. The outlook of the Chinese economy however still remains relatively grim as the People’s Bank of China continues to tighten lending to prevent the economy from overheating. The central bank has previously stated that it plans to raise lending rates by once or twice again before the end of the year.

Chinese_PMI_Fall_Sharply_body_Picture_6.png, Chinese PMI Falls, Softening Australian and New Zealand Dollars

AUDUSD 5 minute chart; vertical line indicates time of data release. Chart generated with FXCM Strategy Trader.