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Australian Dollar Steady after China PMI Shows Service Sector Cooling

Australian Dollar Steady after China PMI Shows Service Sector Cooling

Daniel Dubrovsky, Contributing Senior Strategist

Talking Points

  • Australian Dollar little changed after Caixin China PMI report
  • China services PMI 51.7 vs. 52.7 prior, composite PMI 51.9 vs. 50.3 prior
  • Employment component falls to 49.3 in July versus 50.9 in June

The Australian Dollar offered a reserved reaction to the Caixin China PMI report Wednesday morning. The important trade link between Australian and China has been superseded recently by the intensified focus on monetary policy. During yesterday’s session, the AUD/USD generated more volatility than follow through in the aftermath of the Reserve Bank of Australia rate decision in which the central bank cut rates to a record low.

The gauge of the country’s service sector health showed a reading of 51.7 in July, slower than the 52.7 reading in June. A reading above 50 indicates expansion, while a reading below marks contraction. The overall Composite PMI sped accelerated to 51.9 versus the previous 50.3. Noteworthy in the report’s details, the employment component declined, printing 49.3 in July versus 50.9 in June. Meanwhile, business expectations rose to the highest reading since April 2016.

The services report showed that the consumer portion of China’s economy is expanding, albeit slower than in June. China is attempting to transition from a manufacturing-based to consumer-oriented economy. Perhaps the minimal reaction from the sentiment linked Aussie can be further explained by key upcoming event risk. This Friday, the US will release July’s NFPs as the intensity of speculation over Fed rates has increased.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of -1.3 following the announcement, meaning that for every long AUD/USD position, there are 1.3 short exposures. The SSI is a contrarian indicator at extreme levels, implying further AUD/USDstrength ahead.

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.