Talking Points
- Australian Dollar little changed post Caixin PMI report
- Manufacturing PMI 49.4 in April versus 49.8 expected
- Small response likely due to pre-positioning for the RBA
Having trouble trading the Australian Dollar? This may be why.
The Australian Dollar showed a tepid response against its major peers after China’s Caixin PMI crossed the wires. The gauge of the manufacturing sector showed a print of 49.4 in April, worse than the 49.8 forecasted by economists and lower than the 49.7 reading in March. A reading below 50.0 shows a contraction while a mark above indicates growth. This marks a 14th consecutive month in which the manufacturing sector contracted.
Perhaps a minimal reaction from the Aussie could be explained by the upcoming Reserve Bank of Australia monetary policy announcement. Overnight index swaps are pricing in a 55 percent probability that the central bank will cut rates by 25 basis points. Such parameters could deter speculators from taking on large positions ahead of a potentially volatile event.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of -1.12 following the announcement, meaning that for every trader long the AUD/USD, there are 1.12 on the short side. The SSI is a contrarian indicator, implying further AUD/USD strength ahead.
Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.
