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Aussie Dollar Resumes Advance after Caixin PMI Services Report

Aussie Dollar Resumes Advance after Caixin PMI Services Report

Daniel Dubrovsky, Strategist

Talking Points

  • AUD/USD stalls and then resumes gaining after Caixin China PMI report
  • PMI Services 51.8 versus 52.2 prior, PMI Composite 50.8 versus 51.3 prior
  • Data highlights goal to transition from manufacturing to service economy

Having trouble trading the Australian Dollar? This may be why.

The Australian Dollar showed a tepid response to the Caixin China PMI report. During yesterday’s session, the pair hit a 6-week low and corrected higher. In the aftermath of the report, the Aussie briefly stalled and then resumed its advance. Meanwhile, the DailyFX Speculative Sentiment Index (SSI) showed a reading of 1.24 following the announcement implying further Aussie weakness ahead.

The gauge of the country’s service sector showed a print of 51.8 in April, slower than the 52.2 reading in March. A reading above 50 indicates expansion while a reading below shows contraction. The overall composite PMI also slowed down coming in at 50.8 versus 51.3 prior.

More importantly, the services report showed that the consumer portion of China’s economy is expanding – albeit slower than in March. The nation’s government is attempting to transition from a manufacturing based to a consumer oriented economy.

Even though China is Australia’s largest trading partner, perhaps a minimal reaction from the Australian unit could be explained by key upcoming event risk. This Friday, the US will release April’s employment report which could potentially be a volatile event. Since the Aussie Dollar is a risk sensitive currency, traders could be taking initiative by closing short positions in order to ride out a potential storm.

Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.