AUD/USD Falls As China Weakens Yuan to Lowest Point in 5 Years

Talking Points:

• AUD/USD exchange rate declined before the Chinese PMIs were released
• China composite PMI drops below 50 threshold, consumer sentiment improves
• Record Yuan fixing rate accommodation may have influenced risk-off trading

Losing Money Trading the Australian Dollar? This Might Be Why.

The Australian Dollar started a decline against its US counterpart before China was due to release a couple of PMI figures. Once the data crossed the wires, Caixin PMI Services showed a print of 50.2 in December as opposed to its 51.2 reading in November. The Caixin PMI Composite showed a slight contraction to 49.4 for the same period, and the prior figure was 50.5. Also released at this time was the Westpac-MNI Consumer Sentiment gauge, which rose slightly to 113.7 in December versus its 113.1 print in November.

The timing of the Chinese PMI release occurred in the midst of risk aversion. Australian front-end bond yields, the Nikkei 225 index, and S&P 500 futures all tracked lower ahead of the news. The drop in these assets occurred approximately when China weakened the Yuan reference rate against the US Dollar to the lowest point since April 2011. Financial news outlets have speculated that this may have caused risk-off trading because it infers the world’s second largest economy requires additional accommodative policy measures for growth.