Talking Points:
- China’s preliminary Manufacturing PMI for September printed a reading of 47.0
- The Aussie fell 0.7 percent against the US Dollar
- The data adds to global growth concerns as well as dovish expectations for the Fed and RBA
The Australian Dollar fell nearly 0.7 percent against its US counterpart Wednesday morning after the China Caixin Manufacturing PMI for September raised expectations for a further slowdown in the world’s second largest economy. The gauge of China factory sector health posted a reading of 47.0 versus the 47.5 projected. That is the lowest reading from the series since 2009. It is important to note that any figure below 50 represents a contraction in the sector – and thereby adds to concerns that the Chinese economy will continue to slow moving forward.
From the Aussie Dollar’s perspective, this carries direct implications for diminished export demand. China is Australia’s largest trade partner, and its manufacturing sector fueled much of the demand for Australia’s raw materials – shipments that fueled economic health through the Great Financial Crisis (GFC). It also carries more indirect implications that monetary policy efforts the world over will soften to counter this headwind. For the RBA, that adds to rate cut speculation. The market is pricing in an expectation for at least one 25bps rate cut over the next twelve months.
More broadly speaking, this economic release stirs deeper sense of discomfort for global investors. Following an IMF report suggesting China’s economy may be heading for a deeper slowdown than expected and after Fed Chairwoman Janet Yellen noted concern over the country and the Emerging Market at last week’s FOMC meeting, a sharper focus is being cast to this important global player. Ahead, further PMI readings are due from the Eurozone, US and Japan. If they follow this path, investor sentiment will suffer.
.
Other countries have their PMI releases this week as well. Stay updated with major releases on our calendar.
